The Power Of Persistence

1/4/2016


In baseball, the gold standard of persistence is 2,632 — the number of consecutive games Cal Ripken Jr. played. In Quadrix, we measure persistence by the number of months a stock scores 80 or higher for the Overall score.

After all, stocks with high Overall scores tend to outperform. Not surprisingly, the same holds true for stocks that consistently earn high Overall scores.

To measure the effectiveness of stocks with persistently high Quadrix scores, we took S&P 1500 Index stocks with Overall scores of at least 80, then separated them into quintiles based on how often their Overall score was 80 or higher in the prior 24 month-ends. In the top quintile, stocks averaged at least 80 in roughly 23 of the past 24 months. Stocks in the lowest quintile scored 80 or higher in just three months, on average.

The quintile of stocks that most frequently scored at least 80 for Overall averaged a 12-month total return of 17.9%, based on rolling 12-month periods going back to October 1994 — higher than any other quintile. Stocks with the lowest persistence fared the worst, averaging a 12.8% return. The full results are shown below.

At the moment, persistence is doing a good job of identifying market-beating stocks, with the top quintile outperforming all others in each of the past six rolling 12-month periods.

Next we review three stocks that have consistently ranked among the tops in our research universe:

Centene ($66; CNC) has earned a Quadrix Overall score of 80 or higher in 23 of the past 24 months. It has also scored above 90 in 22 straight months. The stock has surged 26% over the last 12 months, versus a 7% gain for the S&P 1500 Health Care Sector Index. Yet the shares earn a Value rank of 67 and trade at 19 times expected year-ahead earnings.

Centene's pending acquisition of Health Net ($69; HNT), expected to close in February, should help drive operating momentum in the coming year, with per-share profits projected to rise at least 39%. In December, management said industry trends remain healthy, noting no recent changes in utilization or medical claims. Centene is a Buy and a Long-Term Buy.


Lam Research ($80; LRCX) operates in the highly cyclical semiconductor-equipment industry, meaning its Overall score can experience long periods of ranking among the very best and very worst stocks in our research universe. Lam's current upturn is reflected in Quadrix, with its Overall score exceeding 80 in 23 of the past 24 months — and topping 60 in 26 straight months. Over the past 25 years, prior upswings, which we define as Overall scores above 60, lasted anywhere from 22 months to 49 months. The consensus projects per-share-profit growth of 9% in the current fiscal year and 11% annually over the next five.

The stock also looks reasonably priced, earning a Value rank of at least 60 in each of the past 13 months. At 14 times trailing earnings, the stock trades 17% below the industry median. Backing out net cash of $11 per share, the trailing P/E dips below 12. Lam is a Buy and a Long-Term Buy.


Skyworks Solutions' ($79; SWKS) Overall score has exceeded 90 at each of the past 34 month-ends, dating back to February 2013. In that time, its shares have rallied 231%, versus 37% for the S&P 1500. The shares have advanced 9% in 2015, while the index was flat.

Despite that rally, Skyworks earns a decent Value score of 63 and trades at just 15 times trailing earnings, a 26% discount to the median for S&P 1500 semiconductor stocks. Skyworks also consistently ranks among the very best stocks in Quadrix for operating momentum, earning a Momentum score of 95 or higher for at least 13 consecutive months. Skyworks is a Buy and a Long-Term Buy.

CONSISTENTLY GREAT IN QUADRIX
Half of our recommended stocks earn Overall scores above 80 and have also scored above 80 at month-end in more than 18 of the past 24 months.
12-Mo.
Total
Return
(%)
Est. EPS,
Next 12
Months
(%)
Est.
12-Mo.
EPS
Change
(%)
Forward
P/E Ratio
------ Quadrix Scores ------

No. Of
Periods
Overall 80
Or Higher
In Last 24
Month-
Ends

Company (Price; Ticker)
Momen-
tum
Value
Overall
Alaska Air
($81; ALK)
40
7.10
19
11
91
75
99
24
Apple ($107; AAPL)
(3)
9.71
6
11
92
90
97
24
CDW ($43; CDW)
22
3.21
15
13
73
57
91
19
Centene ($66; CNC)
27
3.53
19
19
90
67
97
23
Comcast
($57; CMCSa)
(1)
3.49
9
16
60
76
80
21
F5 Networks
($98; FFIV)
(27)
7.01
5
14
50
80
80
22
Foot Locker
($65; FL)
18
4.60
11
14
80
61
94
24
Gilead Sciences
($102; GILD)
7
11.64
(1)
9
92
93
99
20
Goodyear Tire
($33; GT)
17
3.80
28
9
87
91
99
22
Jones Lang
($159; JLL)
5
10.23
5
16
90
67
96
23
Kroger ($42; KR)
34
2.17
8
19
79
42
89
21
Lam Research
($80; LRCX)
2
5.88
0
14
92
79
97
23
Lear ($124; LEA)
27
11.36
14
11
95
84
99
24
Lincoln National
($51; LNC)
(12)
6.39
4
8
54
94
91
24
Skyworks Sol.
($79; SWKS)
11
6.29
19
13
94
63
91
24
Southwest Airlines
($43; LUV)
7
4.03
25
11
94
82
98
24
Note: Quadrix scores are percentile ranks, with 100 the best.

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