The ‘X’ Factor for 2015’s Biggest Stock Winners

Commodity trading
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Mid-summer is one of my favourite times of year.

The pre-Christmas hustle and bustle is a fading memory. In its place are the long lazy days of early January. It’s a time to relax and enjoy some downtime.

One of my traditions this time of year is a day at the cricket. I’ve been a regular at the Sydney New Year’s Test since I was a youngster.

My first Test match experience was in the summer of 1982. I was a cricket mad 11 year old…and Dad was taking me to see Australia take on the West Indies.

Cricket in the early 80s was very different to what it is today — both on and off the field.

You see, the dominant team back then was the mighty Windies (the team was so good it had a nickname). They were world beaters. No other side came close.

Many of the players had their own nicknames. Leading the charge was ‘supercat’ Clive Lloyd, then there was the ‘master blaster’ Viv Richards, and fast bowler ‘big bird’ Joel Garner.

These guys were household names. Even people who didn’t follow cricket knew who you were talking about. They really were that good.

My Dad and I would sit in the Bradman stand. This was an excellent spot to watch the game. It was also opposite The Hill — a big grassy bank below the scoreboard.

The Hill catered to a colourful mix of cricketing enthusiasts. Flags, banners, war cries, and plenty of full strength beer made for a lively day out.

I remember Dad drawing my attention to a commotion on The Hill. It was one of the infamous beer can fights. Dozens of empty tinnies flew in all directions.

You couldn’t imagine such a scene today. But it was all part of cricket in the 80s.

A lot has changed in 34 years. The Hill has gone. And sadly, the Windies are no longer so mighty. It was a different era.

Spotting the theme

Cricket isn’t the only thing I’ve been reflecting on these holidays. I’ve also been reviewing Quant Trader’s 2015 results. But unlike the cricket, it’s not just a nostalgic step back in time.

Annual reviews are an important part of my trading plan. They help me focus on how the overall strategy is performing. Key themes often emerge when I slice and dice the data.

Have a look at the table below…

ASX Code Company Signal No. Entry Date Profit Subindex
BKL BLACKMORES 2 21/01/2015 458.9% ASX 200
HUB HUB24 1 13/07/2015 211.0% Outside
BAL BELLAMY’S 1 28/08/2015 131.1% ASX 300
AMA AMA GROUP 2 23/02/2015 113.6% All Ords
SIQ SMARTGRP 1 11/08/2015 101.2% All Ords
APE A.P. EAGERS 2 17/02/2015 93.0% All Ords
SGF SG FLEET 1 2/01/2015 87.1% ASX 300
VTG VITA GROUP 2 7/01/2015 85.2% All Ords
ICS ICSGLOBAL 1 21/04/2015 60.4% Outside
CKF COLLINS FOODS 1 30/06/2015 59.2% All Ords
API AUSTRALIAN PHARM 2 4/03/2015 55.6% ASX 200
CZZ CAPILANO HONEY 1 21/07/2015 47.0% Outside
UXC UXC LIMITED 1 21/07/2015 44.6% ASX 300
APO APN OUTDOOR 1 13/10/2015 43.5% ASX 200
RIC RIDLEY CORPORATION 2 13/02/2015 42.1% ASX 300
BPF BULLETPROOF GROUP 1 31/08/2015 37.9% Outside
EVT EVENT HOSPITALITY 2 4/02/2015 37.2% All Ords
SLK SEALINK TRAVEL GROUP 1 14/09/2015 37.2% All Ords
ELD ELDERS LIMITED 2 28/01/2015 33.6% ASX 300
FPH FISHER & PAYKEL 3 17/02/2015 33.1% ASX 200

 

These are Quant Trader’s top 20 long stocks for 2015.

I’ve excluded signals from 2014. I’m also only including one entry per company. This means a number of profitable trades don’t appear.

So tell me. What do you notice about this data?

The obvious point is performance. The All Ordinaries closed the year with a loss of 0.8%. The stocks in the table did quite a bit better.

Sure, that’s interesting. But it’s not what I’m looking at.

How about the entry dates?

12 of the signals were in the first half of the year. This isn’t surprising. These stocks had longer to perform, so you’d naturally expect them to be amongst the frontrunners.

More interesting is the other eight stocks. These came from the volatile second half of the year. It goes to show that opportunity doesn’t hinge on a strong market.

But that’s still not what interests me most.

Let’s have a look at the signal numbers.

You’ll see there are 11 signal 1s, eight signal 2s, and one signal 3. The first signal for some of the companies was in 2014. That’s why they are not all signal 1s.

Members sometimes tell me they avoid signals 2 and 3. They reason that performance is not as strong. But judging by this table, I’d say signals 2 & 3 are worth considering.

Okay. Let me tell you the piece of data that interests me most.

Have a look at the last column. It shows which ASX subindex each stock belongs to. Take Blackmores [ASX:BKL] for instance. It’s part of the ASX 200.

Scroll your eye down the list. You’ll see only a handful of the stocks are in the ASX 200. This is the subindex most fund managers’ focus on.

Here’s a summary of the data.

Subindex Number of stocks
ASX 200 4
ASX 300 5
All Ordinaries (top 500) 7
Outside the subindexes 4

 

This is really interesting. Quant Trader scans practically every ASX stock. It doesn’t favour any particular segment. The algorithm’s first priority is to identify movement.

Take another look at the top 20. Most of these stocks are not household names. Yet they have outperformed many of the larger and more familiar companies.

The ASX has around 2000 stock listings. That’s a lot of companies. And most of these are virtually unknown.

But here’s the thing. Few traders can analyse anywhere near 2000 stocks. So they instead focus on a subset of the market — like the ASX 200.

The downside of this is that it filters out a lot of potential top performers. You see, many of fastest growing companies are outside of the top 200.

Quant Trader identified plenty of small to mid-tier stocks in back-testing. Many went on to rally by hundreds of percent.

But nothing beats reality. Quant Trader is now identifying these emerging stars in live trading. That’s what I want to see — live signals aligning with back-testing.

2016 is bound to have its share of surprises. The key is to have a robust strategy. Last year shows you don’t need a bull market for some stocks to soar.

Quant Trader will continue to buy what’s working, and sell what’s not. It will be interesting to see this year’s leader board. I suspect we’ll see several new emerging stars.

Until next week,

Jason

Editor’s note: Quant Trader has just signalled several new opportunities. One is an out of favour distribution business with 100% upside potential over the next 12 months. Jason says it’s recovering from extremely oversold levels. Similar situations last year led to impressive gains. Jason says the setup for 2016 is one of the best he’s seen. Click here to gain immediate access to all Quant Trader’s signals with a risk-free trial subscription.

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Jason McIntosh

Jason McIntosh

Jason is a professional quantitative analyst. Before he graduated in 1991 he joined Bankers Trust — a Wall Street investment bank — to be a trader. After Bankers Trust was taken over in 1999, Jason, already financially independent, co-founded a stock market advisory and funds management business called Fat Prophets. At 37 he sold his part of that business and retired. These days, he’s a private trader and system developer. In 2014 he launched the wildly successful trading service: Quant Trader.
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