Diary of a Financier

Quant Screens: Core Value (May 2013)

In Trading Desk on Sat 1 Jun 2013 at 13:46

My Core Value screen scored the following names as the highest ranking outputs on 5/24:

  1. Westjet Airlines ($WJA.TO)
  2. American Railcar Industries ($ARII)- watch list
  3. Foot Locker ($FL)- bought 4/30
  4. Genesco Inc ($GCO)- bought 4/30
  5. Cisco Systems ($CSCO)- vetoed

Output_Core Value 2013.05.24

American Railcar Industries ($ARII) is the newcomer on this list, and I’ve already added it to my watch list. As mainly a manufacturer of train cars & components, ARII is in the right place at the right time, given the proliferation of the US energy exploration & production industry, which has turned to railroad transportation for want of other distribution infrastructure. After a fantastic run from <$8 in mid-2009, ARII has corrected 28% off its alltime high this March. With the railroad revolution as a key theme to this thesis, I wanted to look at ARII’s correlation to the Transportation Index ($IYT). As it turns out, correlation has collapsed from a normal range between 0.8-1 down to -0.098 during the aforementioned correction:

ARII v IYT daily (2006-13)- including correlation

ARII v IYT daily (2006-13)- including correlation

In that vein, ARII should comp against industrials, specifically commercial vehicles & trucks, not transports. Here’s a [attractive] comparison of its key valuation ratios against a peer group:

ARII peers

The first name that comes to my mind when I hear commercial trucks is Navistar ($NAV), a name I recently traded while Crazy Carl Icahn went to work on the board. As it turns out, Mr. Icahn is not only a shareholder in ARII (55% ownership stake), but ARII is actually operating as a subsidiary of $IEP since 1/2010.ARII fundamentals (2013.05.31)

Just by surviving the filter of my quant screen, ARII is fundamentally compelling. Technically, I see a daily, short term Head & Shoulders bottom developing its head this week, so I want to wait for a right shoulder formation ($33.7) before building a position for a rally up to and through a neckline ($36.50). That said, I have much more work to do on this name. I have to read some Ks & Qs to get comfortable. Also, I want to get comfortable with the embedded forecasts for railtraffic growth & demand, because I’ve been observing the deceleration of petroleum railtraffic growth from 50% clips over the past 18 months down to the 28% range as recently as last week, as my Top Newsstuffs mentioned.

I’ll be sure to update any trade activity in my reconciliation.

~~~~

Here’s the performance from the opened positions over this past month; buys all executed 4/30:

$FL -1.64%
$GCO +12.27%
$JOSB +4.25%

Here’s a followup on the last Core Value screen 4/12:

Passive -1.04% (alpha= -4.59)
Active +4.96% (alpha= +1.41)
SPX +3.55%

Output_Core Value 2013.04.12

–Romeo

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  1. Started by buying 1/4 sized position; intend to buy more tomorrow…

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