Of momentum and Greek mythology.

It has been that period of time where people tend to look back over the last year. Indeed I did it myself in December with my post called A dog is not just for Christmas which if you missed it, you can read by clicking the highlighted link. Now I know some people think that all these reviews of previous years winners and loser is pointless, but given the momentum effect whereby the previous years winners and loser tend to carry on in the same vein, then perhaps it is not such a waste of time looking at these lists after all.

Now coincidentally the stock I covered in the dog piece above was Man Group (EMG) which happened to be on this years list of best performers over the year. The reason I happened upon it was because it had been a bit of a dog and had appeared on a three year under performer screen that I run. I also run a three year out performer screen which I call my Icarus screen after the character from Greek mythology who flew too close to the sun.

I saw an interesting post on this the other day at Alpha Architect which covered the research on this that I alluded to in my earlier post above. The chart below is from their post which show the performance of previous 3 year losers versus previous three year winner over the following three years. You can read the post and get access to the original research paper, if that is of interest to you, by clicking on the chart.  So after my experience with Man Group I'll be paying more attention to these

Click to read more at Alpha Architect

screens this year. So with that in mind and as it is still just about the time for looking back, what can we learn from looking at the screens now? Well on the under performers which are showing some signs of life maybe after seeing some earnings upgrades some controversial names crop up like Quindell (QPP) which is on the turn maybe with a new highly regarded management team just being parachuted in. While Lamprell (LAM) was also there but they have just issued a profits warning this morning. So it show that you would need to tread carefully and do your own research with stocks on this list.
See the following file for the list of 30 or so under performers which have had some upgrades recently.

3_yr_underperformers_-_with_upgrades.csv
File Size:	3 kb
File Type:	csv

Download File

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Meanwhile in terms of the out performers or Icarus stocks which may be flying too close to the sun some typical highly rated stocks with no yield getting down grades recently include Allergy Theraputics (AGY), but it does vaccines so who knows? While Earthport (EPO) which apparently does cross borders payments is one that stands out for me as it has not made a profit in the last 6 years and sells on 20x sales. it looks dangerous and as though it could fall back to earth to me, although I haven't researched it so I could well be wrong.

Meanwhile more mainstream names appear on the list including Talk Talk (TALK), Hargreaves Lansdowne (HL) and Restaurant Group (RTN), which coincidentally I sold recently having held for nearly three years. Of course just because they are on this list doesn't mean they will underperform, but certainly worth watching if they have a high rating, little or no yield support and down grades as that is usually a toxic combination. Again if it is of interest you can see the 60 or so names that have done well over three years but seen downgrades more recently and therefore might need watching more closely if you hold them.
 

icarus_screen_-_3y_op_with_dgs.csv
File Size:	6 kb
File Type:	csv

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