Diary of a Financier

Quant screen: Low Enterprise Value (November 2013)

In Trading Desk on Mon 18 Nov 2013 at 10:48

My Low Enterprise Value screen scored the following names as the highest ranking outputs on 11/11:

  1. HCI Group Inc ($HCI)- bought 10/18
  2. Banco Macro SA ($BMA)- bought 10/18
  3. Netease Inc ($NTES)- new, watch
  4. Magellan Health Services ($MGLN)- new, watch
  5. Barrett Business Services Inc ($BBSI)- new, watch
  6. Taser International ($TASR)- watch
  7. American Equity Investment Life Holding ($AEL)- new
  8. Raymond James Financial ($RJF)- new, watch

Low EV 2013.11.11

This is a working post, so qualitative assessments for the lists’ new names will follow shortly.

Again, I have to note that this new list has already significantly outperformed SPX to date (alpha of +2.3%).

So far, my work has put Netease on my trade blotter, where it will sit as I await an entry point to buy.  NTES is a Chinese electronic gaming company.  What Nintendo ($NTDOY) was to 1980s America, NTES can be to 2010s China.  It has a nice foothold in multiple device gaming in a country where the middle class is rising with a nice tailwind to consumer expansion.  Further, NTES has joint ventures/partnerships/licensing deals with some prominent foreign (US) companies–an important vote of confidence in the shadowy Chinese capital markets.

An important near term catalyst for NTES is its launch of 2 new games before year-end.  Both new titles are in new genres for the developer, which further diversifies its offerings.  We can expect the launch of newly licensed Blizzard ($ATVI) games shortly too, expanding on NTES’s success in distributing the World of Warcraft series throughout China.  New mobile games are forthcoming in 2014 too.

This is a real company, with real, recurring cash flows; this isn’t some Zynga ($ZNGA) shell game.  NTES wouldn’t have shown up on my screen otherwise.

Technically, intraday, NTES is breaking-out of a 30-minutes Head & Shoulders bottom with $70 neckline resistance. Its daily fractal shows a LT bull flag with $77.5 flagpole. The weekly chart presents little argument, with a bull flag embedded within a longer-term bull channel, despite ST 2x bear divergence in the stochastic and MFI, plus LT 3x divergence in MFI alone–the latter of which is undergoing a bull reversal in MACD:

NTES fundamentals & chart

~~~~

Here’s the performance to date (intraday) of unrealized positions still open from prior screens; buys executed 4/30, 6/10 & 10/18, as documented:

$ARII +35.75%
$BMA -5.44%
$FL +6.97%
$FXCM -3.03%
$GCO +16.32%
$HCI +12.84%
$IBKR +44.62%
$JOSB +16.94%
$SMP +8.21
$VMI +5.11%

Here’s a followup on the last Core Value screen 10/23:

Passive +6.67% (alpha= +3.73)
Active +6.08% (alpha= +2.94)
SPX +3.14%

Core Value 2013.10.23_Update 

Here’s a followup on the Low Enterprise Value screen run 10/8:

Active & Passive +17.90% (alpha= +9.09)
SPX +8.80%

Low EV 2013.10.08_Update 

~~~~

We started a position in Telecom Italia ($TI) at $9 on Friday, which continues our rotation into international exposures.  Our portfolio’s allocation remains just over 70/27/3 (stocks/bonds/cash) vs 60/40 benchmark; beta fluctuating around 0.93 vs 0.76 benchmark; sigma at 1.14 vs 0.51.

We still expect the #Euphoria trade into year-end, perhaps redoubled by a flurry of M&A activity.

–Romeo

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  2. […] core portfolio remains overweight its 60/40 benchmark at 69/27/4 (stocks/bonds/cash), with beta up at 0.92 vs 0.76 […]

  3. […] a followup on the last Low Enterprise Value screen […]

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