Buying Inexpensive, High Quality, Growing Firms: A History Of Outperformance When Using Uniform Accounting-Based ...

 Valens Research would like to share with you the Litman Letter for May 2017, which discusses how applying UAFRS metrics to a simple screen that many investors likely run on as-reported metrics can create substantial market outperformance.  

What happens if each year, one simply buys the 30 companies that exhibit high levels of economic profitability (high UAFRS-based return on assets), continued business re-investment (high UAFRS-based asset growth) and yet still screen inexpensive (lower UAFRS-based P/E multiples)? 

Since 1998, the 30 highest quality/highest growth companies, with the least expensive stock prices, crush the market with an amazing performance of about 15% per annum versus the S&P500’s 5.2% over the same period.

What are those 30 stocks today? When screening on uniform accounting, one sees a very different group of firms than using traditional as-reported metrics. AAPL AVGO, CRUS, GILD and LRCX are a few of those names. 

Hope you enjoy this month’s letter, and hope that some of these ideas help your portfolio generate outsized stock returns in the coming year. 

Valens' equity and credit research relies on a bedrock of deep UAFRS ( UAFRS: Uniform Adjusted Financial Reporting Standards a.k.a. Uniform Accounting ) fundamental forensic analysis with a coverage of over 4,000 equities and all major corporate credit. That means “cross-capital” equities and credit research are not siloed, but instead are fundamentally aggregated and compared with orthogonal data points. 

To access all our Litman Letters and our Market Phase Cycle macro analysis using our proprietary tools, click  here  .