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Stock Strategies
Luke Wiley’s problem-solving mantra revolves around “inversion,” or the attempt to avoid the factors that would result in the opposite of your desired action.
Wiley was looking at ways to avoid the behaviors, mindset, emotions, market noise and investment strategies that result in poor long-term investment performance.
His journey led to an investment strategy that looks to buy low and sell high, but only focuses on the shares of sound companies trading near their 52-week lows that have a competitive advantage, maintain a strong margin of safety, generate a consistent returns on their invested capital and are financially strong.
Wiley lays out his five-filter investment strategy in the book “The 52-Week Low Formula” (John Wiley & Sons, 2014), which is further discussed in Wiley’s article in this issue.
For this First Cut, we built a filter that captures the strategy using AAII’s Stock Investor Pro fundamental stock screening and research program.
If you wish to buy low and sell high, Wiley argues that you should look among the stocks hitting new 52-week lows, not 52-week highs. Stocks hitting new lows have more sellers than buyers, so it is easier to find bargains.
Wiley employs five primary filters to locate “structurally sound companies” that are currently unpopular.
The stock universe for our First Cut consists of 4,177 exchange-listed domestic firms. The first criteria seek companies possessing a durable competitive advantage by screening for stocks with recent and five-year average gross margins above their industry medians.
We then look for companies with a free cash flow yield (pre-dividend free cash flow divided by enterprise value) above 2.5%, which exceeds the current 10-year Treasury note yield of 2.1%.
Profitability is demanded by screening for return on invested capital (latest year and five-year average) above 10%.
Minimum financial strength is required by specifying that long-term debt not exceed pre-dividend free cash flow by a factor of three.
Finally, we screen for stocks trading within 10% of their 52-week low and that have undergone price declines of at least 20% over the last 52 weeks. Twenty-eight stocks made the First Cut, and they are ranked by their 52-week price change below.
—John Bajkowski, president of AAII
Table 1. Stocks Passing Wiley’s 52-Week Low Strategy (Ranked by Price Change)
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Gross Margin |
Free Cash Flow Yield (%) |
Return on Invested Capital (5-Yr Avg) (%) |
LT Debt to Free Cash Flow (X) |
Price Change (52-Wk) (%) |
Stock Price (52-Wk High-Low) on 9/18 |
Industry |
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Co (%) |
Indus (%) |
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| Company (Ticker) | ||||||||
| World Acceptance Corp. (WRLD) | 96.1 | 57.9 | 21.1 | 13.8 | 2.3 | (62.6) | $27.41 (96.23-27.01) | Consumer Financial Services |
| Alliance Holdings GP, LP (AHGP) | 37.8 | 18.4 | 11.9 | 34.1 | 1.9 | (51.0) | $35.39 (72.17-34.30) | Coal |
| Westlake Chemical Corp. (WLK) | 29.1 | 20.5 | 6.8 | 15.6 | 1.2 | (44.9) | $52.11 (95.54-50.01) | Chemicals - Plastics & Rubbers |
| PDF Solutions, Inc. (PDFS) | 59.5 | 38.4 | 5.7 | 13.5 | 0.0 | (41.4) | $11.15 (19.52-11.00) | Semiconductors |
| Fossil Group Inc (FOSL) | 56.2 | 27.3 | 8.1 | 25.9 | 2.2 | (40.4) | $58.74 (115.20-56.01) | Jewelry & Silverware |
| Deckers Outdoor Corp. (DECK) | 48.3 | 38.9 | 4.7 | 19.9 | 0.0 | (37.8) | $60.95 (99.88-59.62) | Footwear |
| Ralph Lauren Corp. (RL) | 57.1 | 35.9 | 3.8 | 17.3 | 1.2 | (36.7) | $109.38 (187.49-104.34) | Apparel/Accessories |
| Saia Inc. (SAIA) | 77.0 | 50.7 | 3.3 | 10.0 | 2.8 | (36.0) | $34.26 (62.31-34.13) | Trucking |
| Raven Industries, Inc. (RAVN) | 26.3 | 20.6 | 5.2 | 21.6 | 0.0 | (35.0) | $17.35 (27.24-16.30) | Fabricated Plastic & Rubber |
| Tripadvisor Inc (TRIP) | 96.3 | 46.6 | 2.7 | 20.6 | 0.9 | (29.9) | $68.64 (99.57-62.50) | Recreational Activities |
| NVE Corp. (NVEC) | 78.7 | 38.4 | 4.2 | 11.5 | 0.0 | (29.1) | $48.22 (81.55-48.14) | Semiconductors |
| QUALCOMM, Inc. (QCOM) | 59.9 | 41.1 | 4.3 | 14.1 | 2.3 | (28.8) | $54.45 (78.53-52.59) | Communications Equipment |
| Dover Corp. (DOV) | 37.7 | 26.5 | 6.8 | 11.7 | 2.5 | (28.7) | $60.86 (86.13-55.50) | Misc. Fabricated Products |
| Cohen & Steers, Inc. (CNS) | 88.9 | 79.0 | 5.9 | 25.6 | 0.0 | (28.1) | $28.96 (47.16-27.77) | Investment Services |
| Gap Inc. (GPS) | 37.5 | 36.2 | 7.0 | 27.9 | 1.2 | (28.0) | $31.57 (44.36-30.75) | Retail (Apparel) |
| NetApp Inc. (NTAP) | 62.2 | 33.8 | 11.9 | 11.6 | 1.5 | (27.7) | $31.36 (43.75-28.88) | Computer Storage Devices |
| Vitamin Shoppe Inc. (VSI) | 33.0 | 25.0 | 4.7 | 12.2 | 0.0 | (27.5) | $32.93 (49.04-32.85) | Retail (Grocery) |
| Dolby Laboratories, Inc. (DLB) | 91.5 | 46.5 | 3.1 | 15.3 | 0.0 | (26.7) | $31.99 (46.17-29.87) | Motion Pictures |
| MSC Industrial Direct Co. (MSM) | 45.4 | 30.1 | 3.3 | 17.7 | 1.4 | (26.1) | $64.08 (87.31-63.97) | Misc. Capital Goods |
| Monotype Imaging (TYPE) | 81.5 | 61.1 | 5.0 | 11.5 | 0.0 | (26.0) | $21.46 (34.42-20.84) | Software & Programming |
| Sun Hydraulics Corp. (SNHY) | 39.8 | 26.5 | 5.9 | 21.2 | 0.0 | (25.6) | $28.64 (43.58-28.54) | Misc. Fabricated Products |
| Mead Johnson Nutrition (MJN) | 62.5 | 25.2 | 4.2 | 40.6 | 2.0 | (23.8) | $74.63 (105.45-73.10) | Food Processing |
| Lincoln Electric Holdings (LECO) | 33.8 | 27.4 | 7.9 | 16.5 | 0.4 | (23.4) | $56.12 (75.49-52.30) | Construction & Agricultural Equip |
| Tennant Company (TNC) | 43.1 | 30.1 | 3.1 | 15.3 | 0.6 | (23.0) | $54.49 (75.01-54.35) | Misc. Capital Goods |
| Dillard’s, Inc. (DDS) | 36.6 | 35.9 | 7.8 | 13.3 | 2.2 | (22.8) | $89.87 (144.21-89.35) | Retail (Department & Discount) |
| Coach Inc. (COH) | 69.6 | 36.2 | 7.9 | 38.3 | 1.2 | (22.1) | $29.10 (43.87-27.62) | Retail (Apparel) |
| Psychemedics Corp. (PMD) | 49.6 | 36.3 | 4.0 | 26.4 | 1.2 | (21.4) | $10.54 (17.83-9.82) | Healthcare Facilities |
| Tiffany & Co. (TIF) | 59.9 | 35.1 | 4.1 | 12.7 | 1.7 | (20.6) | $79.35 (110.60-78.90) | Retail (Specialty Non-Apparel) |
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Source: AAII’s Stock Investor Pro/Thomson Reuters. Data as of 9/18/2015. |
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Criteria for Stock Investor Pro Users
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Field: | Operator: | Factor: | Compare to: |
| Exchange | Not Equal | Over the counter | ||
| And | ADR/ADS Stock | Is False | ||
| And | Country | Equals | United States | |
| And | Gross margin 12m | > | Industry Gross margin 12m | |
| And | Gross margin - 5 year Avg. | > | Industry Gross margin - 5 year Avg. | |
| And | FC - Free Cash Flow Yield | >= | 2.5 | |
| And | FC - Free Cash Flw (w/o div) | > | 0 | |
| And | Enterprise Value Q1 | > | 0 | |
| And | Return on inv cap - 5 year avg | >= | 10 | |
| And | Return on inv cap Y1 | >= | 10 | |
| And | FC - LT Debt to FC Flow | <= | 3 | |
| And | FC - LT Debt to FC Flow | >= | 0 | |
| And | FC - Price Chg 52-wk Low | <= | 10 | |
| And | Price Change 52 week | < | -20 | |
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Custom Fields: |
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| FC - Free Cash Flw (w/o div): | [Cash from operations 12m]-[Capital expenditures 12m] | |||
| FC - Free Cash Flow Yield: | ([Cash from operations 12m]-[Capital expenditures 12m])/[Enterprise Value Q1]*100 | |||
| FC - LT Debt to FC Flow: | [Long-term debt Q1]/([Cash from operations 12m]-[Capital expenditures 12m]) | |||
| FC - Price Chg 52-wk Low: | ([Price]/[Price--low 52 week]-1)*100 | |||
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