Stock Picks Based on Quant Strategies

As hedge funds continue to lose clients due to lackluster returns, purely numbers-based investment strategies are gaining popularity. Validea CEO John Reese speaks to the trend in a Nasdaq article published last week.

Like those of our guru-based screening models, these strategies are built purely on the underlying fundamentals of a business. The following picks from our quant investment-based strategies of James O’Shaughnessy, Joel Greenblatt and Joseph Piotroski were identified:

  • Thor Industries, Inc. (THO) manufactures and sells recreational vehicles throughout the U.S. and Canada. Persistent growth in earnings-per-share, modest price-sales ratio, and return-on-total capital of 62% earn high scores for this company.
  • Huntington Ingalls Industries Inc. (HII) designs, builds and repairs ships for the U.S. Navy. The company scores well based in part on the relationship between its price-earnings ratio and the average growth in earnings-per-share (referred to as its P/E/G ratio) of 0.51, well under the 1.0 maximum.
  • Five Prime Therapeutics Inc. (FPRX) is a clinical-stage biotechnology company that earns high scores for its earnings yield of 28% (calculated to include total debt) and return-on-total capital of 59%.
  • HP Inc. (HPQ) is a provider of personal computing and other printing and imaging products. Return-on-total capital of 111% and cash flow per share of $2.88 are among the fundamental strengths of this company, supported by trailing 12-month sales that exceed the market mean by at least 1.5 times.
  • Unum Group (UNM) is a provider of disability insurance products in the U.S. and the U.K. The company boasts an attractive P/E/G ratio of .67 and sales growth of 15% as well as low leverage.
  • Trinity Industries Inc. (TRN) is a diversified industrial company providing products and services to the energy, transportation, chemical and construction sectors. The company scores well based in part on its return-on-assets (8.7%) and expanding profitability (gross margin of 27%).