Introducing Brian’s Dunks – Our Newest Product to Generate Alpha for Active Investors
“We have no control over outcomes, but we can control the process. Of course, outcomes matter, but by focusing our attention on process, we maximize our chances of good outcomes.”
Michael Mauboussin (Wall Street Veteran)
Being an investor and picking winning stocks is not easy, and it never has been. Earlier in my career, one of my mentors was Byron Wien, a notable Wall Street Investment Strategist. He would always remind us younger analysts that one of the equity markets’ main purposes was to confound the most people it could. So, if you sometimes find yourself frustrated with your equity portfolio or a single stock that you bought and were all excited about, you are not alone. Everyone has these moments from the beginning investor to the most seasoned pros.
So, how should one filter through and utilize the vast quantities of information that are associated with markets? Well, as our intro quote states, an investor really needs a process to help minimize emotions, noise, and distractions when attempting to make investment decisions.
With this being said, we are excited to launch our latest single stock offering for subscribers that we are calling Brian’s Dunks. Our research, which has been developed over two decades of Wall Street experience, strongly suggests that our Dunks Product can help fill in the blanks if you’re looking for stock picks that will raise the probability that you will outperform the overall equity market without taking on excessive amounts of risk. For those who are less risk-averse, we also present some higher-risk, but often higher-reward opportunities that will be included in the Mid-Range Jumper section of the overall Dunks. Both these stock lists are derived by the models and techniques that we have been producing for professional institutional investors since the 1990s. For the first time ever, I am now making it available to retail investors on FSInsight.com.
Our investment and selection methodologies are grounded in proprietary quantitative analysis and methods that have not only have stood the test of time but also have been evolving. Please be aware, that because we are using a quantitative model-based method, we are not doing extensive fundamental and catalyst analysis on the individual names we land on. You should always do additional due diligence before adding a name to your portfolio to ensure it conforms with your individual risk tolerance and investment goals.
Are You Ready To Have An Advanced “Quantamental” Model On Your Side?
Well, it has been a pretty wild ride in markets recently. Our new Dunks product is specifically designed to focus on stocks in a way that is divorced from the opinions of commentators, other forecasters, and investors, which can tend to ebb and flow with whatever the headline news story du jour is. I have a unique quantitative methodology that has proven its mettle over multiple market cycles since the early nineties and has delivered consistent tangible value to hedge funds, banks, and other institutional clients over that period. Now, you can have an advanced model on your side helping in your stock selection decisions.
One of the reasons institutional investors generally have the edge over their retail counterparts is because of their more sophisticated and data-driven methodologies for picking stocks. You’ve undoubtedly heard of these elusive and hard-to-understand models, but now the playing field is being leveled somewhat in your favor as you now have access to a Wall Street Pro’s tools and techniques. My proprietary stock selection method and model has a long history of picking winners and helping investors achieve impressive returns.
Why does this methodology give you an advantage? One of the most critical inputs into my selection process is a proprietary analyses of profit cycles and earnings revisions. Without going into too much detail, my research shows that understanding where a stock, sector, and even the overall equity market is in their own respective profit and earnings revisions cycles and where they are going are some of the most important inputs for making equity investment decisions.
A universe of sell-side analysts regularly covers various stocks and industries. They do the hard work, and they are regularly in touch with industry watchers, company management, and other subject-matter experts to attempt to make forecasts for the individual stocks that they cover. Rather than paying attention to one analyst, we give you insights based on how the views of the entire analyst community, which we often refer to as the “Consensus”, are evolving. We analyze the aggregation of all these sell-side analysts forecasts for future profits. Importantly, we gain valuable insights from the “herd” and our proprietary model derives critical signals before the investing crowd is aware of these emergent trends. Our process-driven methodology is data-driven and has been used by the institutional community over two decades and varying market environments.
Objective Data Analysis and Quantitative Indicators Over Hype, Opinions and Rumor
Over the past two years, there has certainly been a lot of head-scratching market behavior. It is a miracle that I still have a full head of hair after all that has been thrown at investors. Furthermore, it has not helped hearing the constant drum beat of the bears. Admittedly, I am human, and there are times that even myself can feel the tug of emotion trying to impact my decision-making as the Wall of Worry can be quite intimidating. However, when one has an objective and effective model on their side, it tremendously helps to confidently step up and make important investment decisions while also allowing you to rest more soundly as well.
We also know there’s a lot of reasons to pick a stock. Our extensive research asserts that one of the most critical factors in the stock selection process is identifying which companies are going to have their forward earnings improve at a pace that is faster than the overall market. We analyze the second derivative changes of analyst changes, which allows us to get a sense of emerging trends before the crowd does. I know that sounds complicated as I always get lots of confused looks from my family and friends when I try to explain what I do every day at work.
First Release
Dunks
AMZN 2.55% – Amazon ( New Addition )
- ASM Indicator: – at a negative extreme with some nascent signs of a positive inflection, which is historically a bullish occurrence.
- Earnings Bars: also at an extreme negative level, which confirm the ASM reading. The bars have not yet begun to shrink, but are expected to improve during 1Q22 and help provide a powerful tailwind.
- Valuation: is off its 2020 highs and now sits at one of the most attractive levels since 2018.
- Brian’s Take: AMZN 2.55% has struggled since making its relative high in July 2020 and has underperformed the S&P 500 by over 25 percentage points since then. It was not surprising to us as our work has been unfavorable. However, our single stock quantitative selection that we call ERM is flashing early signs of less bad, which is an important contrarian buy signal in our process.
- Commentary: Amazon is the undisputed leader in e-commerce and cloud services through its Amazon Web Services segment. We believe the competitive advantage will be hard for peers to catch up to. The company will likely grow at above-market rates as the importance of cloud and e-commerce continues to increase.
GM 0.95% – General Motors ( New Addition )
- ASM Indicator: after pausing and rolling over for the past eight months, it is now strongly rising, which is quite favorable.
- Earnings Bars: like its ASM indicator, the bars showed some weakness since March 2021, but have begun shrinking, which fully confirms positive ASM reading and is a bullish development based on our process.
- Valuation: is off its bottom, but GM still is only selling for 8.7x forward 12-months OEPS, which should not be a headwind to upside gains.
- Brian’s Take: GM 0.95% has had great performance following its March 2020 pandemic low as it has begun to shift its focus towards electric vehicles. Despite this, the stock made a relative high in March of 2021 and has subsequently lagged the index by over 15 percentage points. Our model suggests that the company is poised to begin another run of outperformance.
- Commentary: this legacy automaker has pivoted from its Internal Combustion Engine (ICE) centered strategy to become one of the most compelling and potentially rewarding plays on the coming Electric Vehicle (EV) revolution. The company is implementing a rapid and impressive transformation.
LYV -3.84% – Live Nation ( New Addition )
- ASM Indicator: Following a steep price decline because of the COVID forced lockdowns, LYV has impressively rallied to new highs. Normally, we are always a bit wary of chasing stocks higher, but our indicators are robust and improving for the company portending that the current bull run has further to go.
- Earnings Bars: after some maxed out red bars during 1H20, the bars are now green and quite robust
- Brian’s Take: following a steep price decline because of the COVID forced lockdowns, LYV has impressively rallied to new highs. We are always a bit wary of chasing stocks higher, but our indicators are robust and improving for the company, portending that the current bull run has further to go.
- Commentary: live music is something we see extraordinary pent-up demand for. This company’s superior scale and operating expertise make us believe it is a great way to play the comeback of large gatherings and entertainment as the economy normalizes in the wake of COVID-19’s most acute period.
PYPL -0.02% – PayPal ( New Addition )
- ASM Indicator: has been under a lot of pressure following its positive extreme high in June and is at a negative extreme reading, which is a contrarian favorable occurrence.
- Earnings Bars: like its ASM indicator, the bars have been both red and quite large. In fact, they are the weakest that we have recorded since it went public in 2015. Importantly, this negative reading is nearing a bullish reversal and we expect to see clear improvement during 1Q22.
- Valuation: is off its peak level and now is rivaling the readings not seen since 2019.
- Brian’s Take: the stock was a strong performer going into the beginning of the COVID pandemic and, like many stocks, had a sizable price decline. After making a bottom in March, PYPL -0.02% had a strong rally until February 2021 and then double topped in July. Subsequent to its July peak, the stock has performed quite poorly and is down over 35%. Our analysis suggests that the outlook for 2022 is likely to be a much better period for PYPL as our indicators are flashing contrarian favorable signals.
- Commentary: This crucial lynchpin of digital commerce has expanded its already dominant position in online payments to include growth opportunities in credit and crypto. We believe as more companies move to online marketplaces, this company will be a key beneficiary.
CCJ 4.91% – Cameco Corporation ( New Addition )
- ASM Indicator: is rising nicely and not yet near a positive extreme
- Earning Bars: after some maxed out red bars during 1H20, the bars are now green and quite healthy
- Brian’s Take: from 1H14 to its March 2020 COVID low, CCJ lost nearly 80% of its value. The stock has impressively rallied since its low, but despite this, the company’s stock price still sits below its 1H14 high and remains over 50% under its price peak reached during 1Q11. Our model is signaling that Cameco has tailwinds to propel it further to the upside.
- Commentary: the energy transition is happening and it is real, but what technology will eventually help bring down carbon solutions without sacrificing quality of the grid? We believe nuclear energy will become a more and more essential part of the world’s solution to evolving energy needs.
Mid-Range Jumpers
FANG 0.82% – Diamondback Energy ( New Addition )
- ASM Indicator: is rising nicely and not yet near a positive extreme
- Earnings Bars: after some maxed out red bars during 2019 and 1H20, the bars are now green and quite healthy
- Valuation: despite FANG’s impressive upward price move, its valuation level is still well below its historical average and quite attractive.
- Brian’s Take: FANG had a brutal 90% price decline from October 2018 to its March 2020 COVID low as most of the Energy sector came under a lot of downward pressure. Although the stock has had a powerful rally following its trough, our indicators point to additional upside gains.
- Commentary: this is a well managed Energy name that should be able to outperform markets and peers and has a tailwind of being in a very undervalued sector.
SBUX -2.36% – Starbucks ( New Addition )
- ASM Indicator: has been under a lot of pressure following its positive extreme high in July and is at a negative extreme reading, which is a contrarian favorable occurrence.
- Earnings Bar: like its ASM indicator, the bars are negative and red. Importantly, however, they are making a higher low, which is historically a bullish set up for a stock’s future relative price performance.
- Valuation: is off its peak level and now is rivaling the readings not seen since 2019.
- Brian’s Take: the stock for SBUX is up over 19% from its 2019 absolute price peak, but the name has significantly lagged the S&P 500 by over 26% as of today’s closing price. The company is clearly negatively impacted by lockdowns, and life has not returned to normal just yet. Yet, our work is now suggesting that the stock price of Starbucks is poised for an earnings revision jolt that would rival its strongest espresso shot.
- Commentary: this is one of the larger and more geographically diversified consumer discretionary stocks. The company’s deep penetration and considerable pricing power make us think its competitive advantage and earnings power will only continue growing over the foreseeable future.
ISRG 1.22% – Intuitive Surgical ( New Addition )
- ASM Indicator: is rising nicely and not yet near a positive extreme
- Earnings Bar: after some large red bars during 1H20, the bars are now green and in a favorable uptrend
- Brian’s Take: in the wake of its sharp price drop because of the 2020 COVID fears, ISRG’s stock price has notably recovered and reached new all-time highs. As noted earlier, we typically are reluctant to chase names as they keep moving higher, but our indicators are strong and improving for the company, indicating that the current bull run likely has more upside potential.
- Commentary: we believe Health Care is a sector ripe for disruption, and this company is one of the leading innovators in the space. The firm has products that utilize both robotics and augmented reality to disrupt healthcare and get better results for patients.
CME 0.95% – Chicago Mercantile Exchange ( New Addition )
- ASM Indicator: made its extreme negative low in March 2020 and is now making a higher low, which is historically a favorable piece of evidence for future performance.
- Earnings Bar: like its ASM indicator, the bars are negative, red, and making a higher low confirming the ASM positive readings.
- Valuation: is neutralish and does not look to be an issue for a stock price move to the upside.
- Brian’s Take: Chicago Mercantile Exchange has been a major laggard since it reached its relative triple top from December 2018 thru March 2020 underperforming by over 34%. The stock has been acting better from an absolute basis and our key indicators are flashing that the company will make up a lot of ground during 2022.
- Commentary: this company is a leading and established financial services name that is a leader in the burgeoning area of derivatives. This company’s profitability will continue to increase as more and more investors use the company’s comprehensive product offerings to manage risk.
TSM 3.50% – Taiwan Semiconductor Corp. ( New Addition )
- ASM Indicator: made a negative higher low in March 2020 and has been stair stepping its way higher ever since. It is now nicely rising and not yet at a positive extreme.
- Earnings Bar: like its ASM indicator, the bars are in an healthy uptrend and has plenty of room before it reaches peak historical levels.
- Valuation: is off its peak level reached during 1Q21 and should not be a headwind for outperformance going forward.
- Brian’s Take: Taiwan Semiconductor has underperformed since it reached its relative top early in 2021 lagging by nearly 30%. The stock has stabilized on both and absolute and relative basis and research is signaling that TSM is likely to reverse to the upside as we move into next year.
- Commentary: this company has steadily risen to the top of the pack in the semiconductor industry and maintains a dominant competitive foothold at the leading edge of chip production.It is probably one of the most important companies on Earth. The unprecedented pricing power caused by a semi-shortage will help the company maintain its considerable lead over peers.
Dunks
| AMZN | Amazon | PLAY |
| GM | General Motors | PLAY |
| LYV | Live Nation | PLAY |
| PYPL | PayPal | PLAY |
| CCJ | Cameco Corporation | PLAY |
Mid-Range Jumpers
| FANG | Diamonback Energy | PLAY |
| SBUX | Starbucks | PLAY |
| ISRG | Intuitive Surgical | PLAY |
| CME | Chicago Mercantile Exchange | PLAY |
| TSM | Taiwan Semiconductor Corporation | PLAY |
What Is The Dunks List? How Do I Use It?
The Dunks list represents the five stocks in our universe that, based on our model, are showing up as quite attractive and are forecasted to have superior risk-adjusted returns, which means they have attractive upside potential, and over a market cycle, should be able to provide relative outperformance.
Our Mid-Range Jumpers list are stocks with great opportunity for upside but may not have as advantageous a risk/adjusted return as the Dunks themselves. In other words, these stocks still have excellent appreciation potential relative to the market and are on the team, but like all team sports everyone can not be in the starting line-up. Additionally, from time to time, we may include a more aggressive SMID cap company or speculative pick because our research finds the name compelling. So, please keep this in mind as they may not be as appropriate for one with a lower risk tolerance.
Before I wrap up, I think we need to include a few points just to make sure we are all on the same page. I apologize if some of these seem quite basic and obvious, but I would be amiss if I didn’t include them.
- Do not put an overly excessive amount of your investment funds into any one name.
- Although our models are favorable on the names presented, it does not have a 100% success rate as much as I try to achieve that unreachable goal. Thus, like all investments that provide returns there is some risk involved and sometimes they go down in value, especially when the equity markets are hit with volatility and negative news.
- The Dunks DO NOT have to be viewed as a portfolio. So, don’t feel you have to buy all the names we are recommending.
- Always do your own research to supplement our analyses.
Ok, that’s it for now. I hope you are as excited as I am to take this step together towards achieving investment returns that help all of you to move closer to your wealth goals.
