Investing before 2022 was easy. Just pick the hottest growth stocks and drive them higher. It kind of felt like 1999 as there seemed to be no end to the gains… that was before the calendar flipped to 2022 and these stocks were crushed. Famed growth investor Cathie Wood’s Ark Innovation fund is even down 61.6% year-on-year. This article will share with you the strategy that will work in 2022 even if the S&P 500 (SPY) is in bear market territory. Read on below for more….
Some people started to believe that value investing was dead.
Yes, that sounds extreme. However, for most of the past few years, the path to stock market success has been paved with buying growth companies, no matter how much momentum… no matter how high their nosebleed PE.
I’m referring to every hot trend from electric vehicles to cannabis to 3D printers to Metaverse to (fill in the blank).
This growth-only investment blueprint seems to negate the virtue of the classic value principles pioneered by Benjamin Graham (and his most famous student Warren Buffett), as these “benefit” investments have gravity-defying multiples.
Those who walked away from value investing point to 3 fatal flaws:
- Value Traps (where the stocks go down and down)
- Classic value statistics no longer work
- Lack of timeliness reduces ROI
So, what’s the solution?
Please give me a few minutes of your time so I can spell it out for you. Especially now that value investing is making a strong comeback in 2022.
This includes sharing details about our coveted Top 10 Value Stocks strategy which has seen average gains of +37.67% since 1999 (4.5x better than the S&P 500 over that stretch).
First, let me tell you more about this computer-generated model. Then we’ll discuss how it solves all 3 fatal flaws of value investing.
That journey begins with a brief discussion of our quantitative ranking system; the POWR ratings.
If you’ve spent any time on StockNews.com, you’ve certainly seen information about our exclusive POWR Ratings system. Indeed, these ratings help investors gain a clear advantage over the market, as can be clearly seen in the performance chart below.
Where does the outperformance come from?
The POWR Ratings model is the most complete overview of a stock currently available to individual investors. All in all, we look at 118 different factors of a stock before assigning an A to F rating.
Which 118 factors?
The simple answer is ONLY the ones that lead to more profitable stock selection. This is really like a DNA check of every stock that goes down to the molecular level to value the stocks that are built to outperform.
Once that analysis of the overall POWR rating is complete, we break down those 118 factors into 6 additional digits to rate a stock’s virtue on the following dimensions:
- Where the
For those of you who are quick to get started, you’ve probably just discovered that if you combine a strong overall POWR Rating with a healthy value score, you’re well on your way to picking the best value stocks.
That process is happy to point you in the right direction.
Unfortunately, you will still end up with a list of over 700 stocks to research.
That’s not so bad if stock picking is your full-time job. However, for most of you that is way too time consuming.
This led to a “Ah!” moment.
What if we could develop a strategy to find the 10 top value stocks that are producing consistent outperformance at any given time?
So we went back to the same data scientist who created the POWR ratings and asked the seemingly impossible: Could he increase the volume of the value metrics and somehow outperform their already thumping market returns?
After months of research and rigorous testing, the Top 10 Value Stocks strategy was born.
We didn’t limit ourselves to just 10 value stocks. But we have also significantly improved performance to +37.67% per year since 1999.
The hallmark of this screen is a diligent focus on the 31 individual value factors that help consistently discover the best value stocks in the market (and just as importantly, ignore the hundreds of factors that actually don’t work at all!).
Optimally combining those 31 unique value factors leads to discovering this incredibly consistent winning strategy.
The keyword is “consistency”
That’s because the POWR Ratings also focus on the consistency of growth. Not only profit growth, but also improvements in sales, profit margins and cash flow.
Then, our rating model takes a closer look at a stock’s quality by zooming in on key metrics that show the health of activity over time.
The steps mentioned above solve the #1 fatal flaw of value investing. That’s how you can avoid the pitfalls that are really just poorly run companies that go from bad to worse. The focus on growth and quality aspects are the best possible health checks to alleviate these problems.
This means we look beyond the overly simplistic measures of value used in the past, bringing you the healthiest growing companies, which happen to trade at attractive discount prices.
Next, we need the 2 . tacklend fatal error. That is, most classic value statistics don’t work like they used to.
Computer-driven trading now dominates the investment landscape. It is no longer seasoned investment managers who make the decisions. Instead, the vast majority of trades are executed by these quantitative models.
This has been the case for over 10 years. And billions of dollars have actually been thrown at these quantitative models to squeeze out every last drop of profit hidden in stocks.
So long ago these models took advantage of the typical value approaches such as PE, Book Value, PEG, Price to Sales etc.
Now, after years of large-scale trading of these models, it could be said that the source of value has dried up.
To be precise, the best value metrics on their own have little benefit. So the key to success is to stack as many of these stats in your favor as possible. Like the 31 value metrics in the POWR Ratings model.
That’s 31 benefits that work in your favor to generate outperformance. Each increases the chance of success. And so the Top 10 Value Stocks strategy can deliver an annual return of +37.67%.
Finally we get the 3 . atrd fatal flaw, which is that value stocks are generally not on time, hurting your ROI.
Value is considered a contrarian investment style. That’s because you’re betting on companies that are currently out of favor in the hope that the stock price will flip.
Unfortunately, the longer it takes… the more it hurts your Return On Investment.
The POWR Ratings like to focus on 25 different factors that significantly increase the timeliness and ROI of the stock.
13 sentiment factors
12 momentum factors
Sentiment factors track what the smart money is doing to the stock, such as institutional ownership, Wall Street analyst estimates, and insider buying. These are proven ways to find timely, favorable stocks.
The next step is to narrow down 12 different Momentum factors targeting stocks that are poised to rise. Momentum is indeed true like physics”a body in motion… stays in motion”.
Overall, the POWR Ratings apply 118 factors to find the best stocks. The combination of these really helps to overcome the 3 fatal flaws of value investing.
Then we choose value attributes to create the Top 10 Value Stocks strategy that boosts performance to an amazing +37.67% per year.
This is how you solve the 3 fatal mistakes of value investing.
And this is the consistent path to finding the best value stocks in the future…
One last improvement
Because as great as the Top 10 Value Stocks strategy is, there is still a glaring flaw in all quantitative systems. And that’s understanding the most important WHY behind what stocks should be bought and when to sell to maximize profits.
That’s why I take it one step further and use my 40 years of investing experience to dive deeper into each stock and pull back the curtain on the all-important qualitative metrics that no computer rating system can discover.
The end result is the very best value stocks, which I hand-select for subscribers to our popular POWR Value Newsletter.
This is truly a best of both worlds solution:
+37.67% annual return from Top 10 Value strategy
Steve Reitmeister with over 40 years of investment experience with a keen eye for discovering hidden value stocks
POWR Value Newsletter to help you discover the best value stocks for the current market.
Yes, even in these volatile markets, where the portfolio has delivered solid profits since December 1st2021, as the general market descended deep into bear market territory.
Now you can experience the market returns of the POWR Value newsletter, for just $1 for a full 30 days.
During your trial period you will get full access to the current portfolio, my weekly market commentary and every trade alert by text and email.
There’s no obligation beyond the 30-day trial, so there’s absolutely no risk getting started today.
I wish you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Right”)
Editor of Reitmeister Total Return & POWR value
SPY Shares. Year-to-date, the SPY is down -17.15%, versus a % increase in the benchmark S&P 500 index over the same period.
About the author: Steve Reitmeister
Steve is better known to the StockNews public as “Reity”. Not only is he the CEO of the company, but he also shares his 40 years of investment experience in the Reitmeister Total Return Portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock selection.