Additional Tickers for the October Reshaping and Reader Questions

Here are therebalan additional tickers for the upcoming reshaping:

AE ALE ARA ATO BAC BAMM BBW BONT BWS C CEC CHIC CHRS CPB CTR DBRN DF DLM DTE DUK FINL FL FMD GEHL GYI HAIN HLYS HNZ HZO JOSB JPM KSWS MW NI NWY ODP OGE PLCE POR PSS PTEN PTRY RSC RT SCVL SGU SHOO SLGN SMRT SRE TUES UNH WLFC WR WTSLA ZONS

And now for a reader question on the original reshaping candidates list:

What’s your ranking system? Have you written a note about it? Also, what was the criteria for inclusion in the list above?

I’ll probably suggest some other stocks as a function of the above. Also, as a value investor myself, I think the following pair of questions is worthy of reflection and debate: 1) Is undervaluation better thought of as a ranking factor or a safety factor – e.g. should one try to pick the most undervalued stocks so they go up the most, or should I try to pick stocks with most improving outlook and use undervaluation and/or low growth estimates as a safety net in case they blow up? 2) To what extent should I use the valuation measure that makes the most rational sense to me vs. the one that gives the best empirical match to market behavior ( fine to reference mean reversion in the answer, but I expect that one can fit data over a long time frame and still find important differences between the two).

Answering in order:

  • The ranking system comes in the next phase.
  • Inclusion criteria was that it looked interesting at some point in the last four months.  Anytime I get an idea, I write it down, and wait for the reshaping.  By waiting, I avoid making hasty decisions, or trusting the authority of another clever investor.
  • Undervaluation — ranking or safety?  Why choose?  They are by nature both at the same time.  Truly undervalued companies have higher upside and lower downside compared to more richly valued peers.
  • Your last question is one that I have thought about a lot and concluded that there is either no good answer, or the data involved is out of my reach.  If you use the one that matches market behavior, then you end up doing relative value trades, but if you use one that takes into account average valuation over time, you can play for mean reversion, but may miss some relative value.  If we had enough data, and a regression package that could do cross-sectional time-series, we could try to isolate both effects, and perhaps figure out when companies and factors are cheap, independent of each other.  Would love to try it, but that would be costly.

One more reader question:

I am interested in your feelings on GLYT. I have recently bought this company. The reported in-line earnings back in July but guided lower, and the market took out their frustrations on them.

They have shown growth both in revenues and earnings and have been pairing down their debt.

Let me know your thoughts


I’ve owned GLYT twice in the 90s.  Great management team; wish I’d never sold it, even though I made good money on it both times.  It’s more expensive today than when I owned it before, and the growth opportunities may not be as good as they were.  If it scores closer to the top of my list, I’ll take a closer look.