The Kirk Report

Heartbreakers

Earlier this week I asked members to submit the name of the stock that they thought would be the largest heartbreaker between this year's Valentine's Day and the next.

As typical with prior years, I received fewer responses in this poll than any other I do throughout the year. My guess it has something to do with the fact that this is the only time of the year I ask for names of stocks that members think will go down and lose money for their shareholders.

If that doesn't say something about the general tendency for people to only think in terms of what is going to go up, I don't know what will. In fact, in casual conversations I have with others (especially those who don't know what I do for a living) I enjoy asking people to tell me their favorite short sell idea. More often than not I receive a blank stare while those same people are always more than happy to share the name of a stock they think is going to be the next Google! When the market comes up in conversation with friends and relatives, try doing the same thing as I do and see what happens!

For this year, 42 "heartbreaker" stocks were submitted. They are Apple (AAPL), Accelrys (ACCL), Agnico-Eagle Mines Ltd (AEM), AIG (AIG), Amag Pharmaceuticals (AMAG), Amazon.com (AMZN), Aeropostale (ARO), Boeing (BA), Baidu (BIDU), Coeur D'alene Mines (CDE), Concur Technologies (CNQR), Capital One (COF), Cree (CREE), Dex One (DEXO), New Oriental Edu And Tech (EDU), Green Mountain Coffee Roasters (GMCR), Google (GOOG), Garmin (GRMN), Goldman Sachs (GS), Hsbc Holdings (HBC), Internet Gold-Golden (IGLD), Isramco (ISRL), JPMorgan Chase (JPM), Kimco Realty (KIM), China Life (LFC), Elong (LONG), Medivation (MDVN), OncoGenex Pharmaceuticals (OGXI), Overstock.com (OSTK), Pfizer (PFE), Pinnacle Airlines (PNCL), Radian Group (RDN), Research In Motion (RIMM), Solarfun Power (SOLF), SunPower (SPWRA), Terex (TEX), Tenet Healthcare (THC), Toyota(TM), Trina Solar (TSL), Vertex Pharmaceuticals (VRTX), W Holding Company (WHI) & Wynn Resorts (WYNN).

However, please note there were 6 stocks that received more than one vote: both Apple (AAPL) and Baidu (BIDU) received 4 votes, AIG (AIG) received 3 votes, and Green Mountain Coffee Roasters (GMCR), Medivation (MDVN), & Toyota (TM) received 2 votes each. I also removed three stocks submitted that were trading under $5 per share (Sirius Xm Radio (SIRI), Zale (ZLC) & Western Refining (WNR)) from the entire list.

A couple of points here. First, it is interesting to see Toyota in this list primarily because of any company has already broken the hearts of many customers and shareholders. From a contrarian standpoint, it will be interesting to see how the company does over the coming year and whether members are correct that this will continue to be a major heartbreak. Second, also interesting to see both Baidu & Apple on this year's list again. Both of these stocks also were in last year's heartbreaker list and certainly didn't cause much heartbreak as they were both up quite a lot since last year's Valentine's Day. Perhaps this is the year, or not. We'll find out!

As always, I'll create two watchlists from this year's survey - one watchlist of the stocks receiving more than one vote (which in the past tends to outperform, or in this case, hopefully underperform) and one watchlist containing the entire list. In a year from now we'll take a look at how all of these perform and I will award a nice prize to those who submitted the worst performer.

Good luck to the members who submitted their favorite heartbreak stock this year!

Stock Screen Machine 2009

As many of you already know, I provide a number of stock screens through my proprietary stock screen machine. With 2009 behind us, this is how my stock screen machine performed in 2009:

2010 will no doubt be another interesting year. I wish all of you much happiness, good health, and prosperity. Happy New Year!

Widest Discounts From Book Value

At mid-month it is time for the monthly update to our widest discounts from book value screen. Since November 16th, the screen performed well by posting a +4.42% return (16 winners & 7 losers). During the same period, the S&P 500 gained +0.43%.

Here's how the screen has performed since February when I started offering monthly updates:

As of this morning, 20 stocks showed up in this screen. To view the update, please login.

Stock Screen Machine In November

If only every month were November! Since October 30th, the S&P 500 rallied +5.74%, Dow +6.51%, Nasdaq +4.86%, and the Russell 2000 +3.01%.

Let's now take a look at how the stock screen machine performed in comparison:

To access these proprietary stock screens, please login.

StockScreen 123

As MSN retires its popular and free stock screener this month, I've been asked many times over the past few weeks for other free stock screening solutions. MSN was one of, if not my favorite free stock screener and honestly there are very few free useful screeners beyond what you can find at Finviz & Google.

In my own work, I use screeners like AAII's Stock Investor Pro ($198 for members & $247 for non-members) among others. I can justify the price because my return on investment outweighs the cost.

StockScreen 123 is a newcomer to the space with a promising future based on my limited experience using and testing the platform this week. Although they require a lengthy registration page where you have to reveal your personal information to access the free tools, once you are past that annoyance a lot of nice features can be found including:

• Screen Backtesting

• Pre-defined screens (Buffett, Graham, Lynch, Greenblatt)

• Style specific screens (Growth, Quality, Sentiment, Value)

• Community screens (Screens created and shared by other users)

• ETF screens

• Performance Tracking

• Sector Performance Tables & Screening

• Customized stock panels

• The Fed Model

When you have time, check it out and let me know what you think. In addition, if there are other completely free screening tools like this you find particularly helpful that I haven't mentioned, let me know and I'll pass them along.

* Update: As of June 2010, it has recently come to my attention that StockScreen 123 is no longer a completely free offering. Readers are encouraged to investigate the pricing plans and take that into consideration when reviewing this screening service. Thank you!

Spooky Stocks Portfolio!

It's Halloween and time for this year's 2009 Spooky Stocks Portfolio!

Earlier this week, I asked members to submit the name of the stock that they think is "most likely to scare investors and blow away their returns” between today and next year's Halloween. I received 48 picks to be considered for the portfolio. However, I decided to do something a little different this time around.

Over the past couple of years, both members and I would create separate portfolios to be tracked independently of each other sort of as a stock competition between all of us. In 2007-2008, the members' portfolio lost -51% while my picks lost -44%. This past year, however, I fared far better in choosing spooky stocks. My portfolio posted a -10.22% loss (8 gainers & 20 losers) versus the +18.48% gain (19 gainers & 11 losers) in the portfolio created by members. Yet, I must say that I'm disappointed in both of our performance as we should have been able to find bigger losers over the past year. Since last year's Halloween, the S&P has gained +6.96.

So, to create a better portfolio this year as a joint effort, I decided to fire up my own screeners this morning and to trim the list down in order to create a spooky portfolio I think has the most potential to produce the scariest returns (i.e. losses) in the coming year. To read the rest of this post, please login.

There Is No Consistent Magic Formula

As someone who bases his own approach on stock screening, I'm often asked about Joel Greenblatt's Magic Formula. So what's my view? Much like most stock screening strategies, each are prone to great winning AND losing streaks. This is something that Greenblatt himself recently admitted in an interview on CNBC:

"The magic formula works over the long haul precisely because it doesn't always work. The great thing about this formula is it's not that great that it works all the time, meaning there are periods of time - could be two or three years sometimes, sometimes longer - where it underperforms the market. And people usually give up on a formula that underperforms the market for that period of time.

Why is that a great thing? Well, if everybody stuck to the formula, the prices of those good companies the strategy identifies wouldn’t get to bargain levels. But since many bail on the strategy when it has an off year or two, disciplined investors are able to scoop up the bargains they’ve left behind. They can get stocks of those excellent companies at steep discounts by staying unemotional and disciplined, and sticking to their strategy. Those who don’t will often miss out on the bargains - and the excellent returns to which they often lead." - Joel Greenblatt

Like most strategies that are pinned to a specific strategy concentration (value, growth, momentum, etc.) they'll all experience their fair share of ups and downs. The problem is that most investors use these strategies only after a period of significant outperformance only to then suffer disappointing underperformance by doing so. That's also why my stock screen machine uses a blend of several different approaches to provide more consistent approach in different types of markets and why I think those who use stock screens should use several screening methods to generate actionable trading and research ideas.

Nevertheless, for more info on Joel Greenblatt's Magic Formula, here is Validea's own 10 stock portfolio based on Greenblatt's strategy. In addition, you can read more about and even access a free screener based on the Magic Formula at Greenblatt's website. In my experience, Greenblatt's screens (like many value-focused screens like our widest discounts to book value) tend to produce the best returns immediately following an extended market correction/bear market than following an extended and/or continued bull market. So keep that in mind when using this magic formula.

The Stock Market's Leaders & Laggards

A look at the stock market's leaders & laggards:

"Among the top ten performance groups are gold mining stocks, precious metal and jewelry companies, non-ferrous mining shares, silver mining firms, and integrated oil companies. All commodity related. Additionally among the top ten were food, flour, and grain firms and paper and related products companies--also commodity related.

So what are the lagging sectors? The bottom ten in performance include regional banks, southwest region banks, savings and loan companies, northeast region banks, southeast region banks, midwest region banks, and western region banks." - TraderFeed

Good traders always keep close tabs on what's working and what isn't. Barchart is also terrific resource, although I also like FinViz.

Stock Screen Machine YTD

With September now behind us, here's a breakdown on how my stock screen machine is performing on a year-to-date basis:

Remember, members have access to all of these screens including monthly updates which will be provided tomorrow.

Widest Discounts From Book Value

In recent days you've no doubt heard complaints over the fact that so-called "junk stocks" have been outperforming the most in the market. In fact, no where can that be seen better than the performance of our Widest Discounts From Book Value screen in July.

Since July 15th, this screen has posted a +29.13% return (19 gainers & 2 losers) in comparison to the S&P 500's gain of +8.58% during this same period. Anytime you can produce a screen that offers three times the performance of the overall market, that's quite unusual (and unsustainable).

As I do at the middle of the month, it's time for me to provide an update to this special monthly screen. For August, 26 companies now show up and which are trading at wide discounts to their book value.....[READ]