Research

We identify the two metrics most important for identifying consistent underperformers: consistently high accruals and poor beta-adjusted momentum. Other metrics, such as share loss, margin contraction, and downward EPS revisions do not incrementally help identify underperformers on average. We conclude the note with short ideas.

We analyzed stock behavior following the announcements of new CEOs. Stocks making new CEO announcements underperform on a volatility-adjusted basis, meaning short of some deep understanding of the new CEO’s strategy, exiting / shorting stocks with a new CEO is on average prudent. The cumulative performance takes nearly 18 months to catch up to the average stock.

Back on October 1, 2002, we initiated as the US Semiconductor analyst at Sanford C. Bernstein & Co, with a note title “Share Gainers and Margin Expanders Are Multiple Expanders”. Nineteen years later we wanted to research the relevance of share gain and margin expansion in software and semis to identify dislocated stocks that may signal an investment opportunity. Going “back to the basics” of revenue growth vs. peers and margin expansion seems timely today.

Our latest market overview: a comprehensive document containing the best of our recent work and up-to-date views.

We provide a detailed quarterly summary to help investors prepare for their quarterly investor communications as well as identify emerging risk management concerns. We break our quarterly analysis into several areas of interest: performance facts, factor efficacy, the opportunity set, corporate profitability, macro / economic developments, and data from 13F filings and insider transactions.

If you want “compounders” focus on companies that consistently have YoY gross margin growth. Persistent gross margin expansion is a better predictor of future returns than sustained revenue growth or net margin expansion, though all are better than just picking the stocks that went up the most consecutive quarters relative to the market.

With a roll-over in key variables associated with economic activity, the aggressive earnings growth expectations embedded in the consensus outlook for industrials stocks is worrisome. Relative estimate achievability into 2022 seems way below average for this group, and we would be selling longs / initiating new shorts today.

We detail some of the unique aspects of our quantitative framework, including cohort formation, signal transformation, dynamic grossing, and risk management. We believe this approach can be useful for bottom-up stock pickers seeking to pick from a better pool of names, rigorously manage gross exposures, and avoid risks such as crowding.

Our latest market overview: a comprehensive document containing the best of our recent work and up-to-date views.

Our consumer activity gauge leads us to believe the US consumer remains in solid shape. With August consumer earnings showing more large beats than misses, but also some stock volatility following the earnings reports, many investors have been asking about the consumer playbook from back-to-school through year-end…