Three stocks on our newest stock list, Brian’s Dunks, reported earnings after the bell on Tuesday. All had mixed results and were down in after-hours trading. We wanted to provide an update and use the opportunity to discuss the quantitative process we use in our stock selection to put everything into context. Benjamin Graham said in the short-term markets are voting machines, and in the long-term they are weighing machines. We try to get exposure to names early, before the rest of the market realizes that these are good stocks. Markets are a discounting machine, so the earlier you are the better. If you’re bidding on a stock that everyone already knows is great, then odds are the alpha is pretty limited compared to other opportunities.

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My work on these names indicated an early positive signal (P+ in the chart above). Therefore, these mixed earnings results and some weak guidance are not necessarily negative surprises to us. Remember, that our time horizon for investments selected with my model is 12-18 months. So, weakness like the notable punishment that PayPal got afterhours and in Wednesday’s trading should be considered a buying opportunity on this time horizon. The early positive signal is not a tactical tool, so when it flags names, they may still have some s...

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