We’re excited to share with you our August 2022 top picks based on factor investing!
Biggest Changes Yet💪
Our Electric Stocks methodology saw the biggest changes yet since launching in June 2021. Here’s what changed:
The factors we used to develop this methodology could be nested under two categories: 1) performance metrics & 2) valuation metrics. However, the ratio of the weights between those two categories was more skewed toward the performance aspect. There was no need for that & so we made sure to balance out the ratio to 50:50.
In doing so we had to reallocate some of the weights over to the valuation side. Here are all the weight changes that happened:
- ROE – Went from 12.5% to 10%
- Net Income 3Y CAGR – Went from 12.5% to 10%
- FCFE Yield – Went from 5% to 10%
- PEG Ratio – Went from 15% to 20%
- Analyst Upside Potential – Went from 15% to 20%
Another major change targeted the non-banking financial services industry.
We found that factors like Net Debt/Equity, Cash Conversion Cycle, & Avg CFO/Net Income were not relevant to the NBFS industry. The weight reallocation of these excluded weights went toward putting more emphasis on profitability ratios, thereby doubling the weight of both the Return on Average Equity & Net Income 3Y CAGR metrics only for NBFS companies.
And finally, we replaced the Simple Moving Average indicator, which acted as more of a short-term metric. In our effort to emphasize long-term thinking we added the average dividend payout ratio for the past three fiscal years. The dividend payout ratio shows how much of a company’s profits go to shareholders.
Research suggests that a dividend payout ratio between 20% to 60% is considered healthy.
News Scan📰
All ten of our August 2022 Electric Stocks passed our news scan, where we scan for potentially negative news that might not be incorporated in our methodology.
14-Month Top Picks Performance🔥
We tracked the performance of the companies that were included in our past fourteen months’ picks.
If you had invested equally in the past fourteen months’ top picks, you would have made a -3.48% return vs a -7.55% return on the EGX30 over the same period.
Last Month’s Performance📈
July 2022’s Electric Stocks performed better than the EGX30 in the month of July 2022. Last month’s Electric Stocks returns recorded a 5.71% increase vs. a an EGX30 return of 5.09%.
It is important to note that fundamental factors explain returns over a long investment horizon. Speculative stocks, in contrast, may significantly outperform fundamentally solid stocks in the short term despite the absence of any understandable catalysts.
