Profiting from Seeking Alpha’s Undercovered Stocks

  • Seeking Alpha publishes a dynamic list of 250 popular tickers that haven’t had recent coverage, mainly small-caps. Ranking and periodically selecting 50 of these undercovered stocks should provide good returns.
  • A trading strategy, backtested over the preceding three years, showed a simulated annualized return of 48% with a maximum drawdown of -18%..
  • Although the portfolio is relatively large, the annual turnover is only 140%.

For the analysis the recent Seeking Alpha listing of June-2019 was used. The backtest to Aug-2019 was performed on the online simulation platform Portfolio 123 with transaction costs and slippage taken into account.

The current listing of the undercovered stocks should not be tainted by survivorship bias since it is a listing of ignored stocks, not one of stocks that have necessarily performed well in the past.   It is unknown if these stocks were also undercovered over the backtest period, and as an experiment going forward we will update the stock universe for the model on a periodic basis using the Seeking Alpha’s listing of undercovered stocks.

3-Year Performance Backtest

The strategy selects 50 stocks from a universe consisting of approximately 250 stocks which are undercovered on Seeking Alpha. Stocks from the sectors Real Estate, Financial, and Energy were not considered for selection.

The benchmark chosen is the Russell 3000 Index as represented by the iShares Russell 3000 ETF (IWV) because the market capitalization of the undercovered stocks ranges from Micro- to Large-Caps.

Performance over three years is shown in Figure-1. The total return and annualized return would have been 227% and 48%, respectively, with a maximum drawdown of -18%. Over the same period the benchmark produced an annualized return of 11.3% with a maximum drawdown of -20%.

Risk measurements are shown below Figure-1 and the current holdings and their allocation are in the Appendix.

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Risk Measurements

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Conclusion

From the analysis it would appear that investing in the undercovered Seeking Alpha stocks according to a suitable trading strategy should produce good returns.

Periodic updates of this model will be posted on our website, imarketsignals.com and/or on Seeking Alpha.

 

Appendix

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Model’s current holdings of undercovered stocks

Ticker Name Weight (%)
1 A Agilent Technologies Inc 0.61
2 ABEV Ambev SA 2.19
3 AFMD Affimed NV 4.02
4 AKBA Akebia Therapeutics Inc 2.43
5 ALXN Alexion Pharmaceuticals Inc 0.51
6 AMNF Armanino Foods of Distinction Inc 5.34
7 APPS Digital Turbine Inc 3.26
8 AVID Avid Technology Inc. 1.65
9 BAX Baxter International Inc 0.69
10 BITA Bitauto Holdings Ltd 1.91
11 BMRN Biomarin Pharmaceutical Inc 0.48
12 BT BT Group PLC 0.67
13 CE Celanese Corp 0.77
14 CODA Coda Octopus Group Inc 5.01
15 CROX Crocs Inc 1.33
16 CVSI CV Sciences Inc 2.24
17 CYH Community Health Systems Inc 3.59
18 DGX Quest Diagnostics Inc 1.19
19 DRRX Durect Corp 6.87
20 GRVY GRAVITY Co Ltd 2.5
21 HLT Hilton Worldwide Holdings Inc 0.51
22 HUN Huntsman Corp 1.01
23 INGR Ingredion Inc 0.98
24 IQV Iqvia Holdings Inc 1.19
25 JAZZ Jazz Pharmaceuticals Plc 0.59
26 KODK Eastman Kodak Co 5.1
27 LDOS Leidos Holdings Inc 0.63
28 LIN Linde Plc 0.46
29 NCLH Norwegian Cruise Line Holdings Ltd 0.92
30 NCR NCR Corp 0.69
31 NUS Nu Skin Enterprises Inc. 1.29
32 OPK Opko Health Inc 1.26
33 QRTEA Qurate Retail Inc 0.59
34 RFP Resolute Forest Products Inc 1.78
35 RUBI Rubicon Project Inc (The) 4.77
36 SCOR comScore Inc 1.94
37 SGH SMART Global Holdings Inc 1.8
38 SHSP SharpSpring Inc 7.09
39 SSYS Stratasys Ltd 0.95
40 SUP Superior Industries International Inc. 7.6
41 SYNA Synaptics Inc 1.66
42 TEL TE Connectivity Ltd 0.5
43 TENB Tenable Holdings Inc 1.19
44 TMO Thermo Fisher Scientific Inc 0.65
45 VCYT Veracyte Inc 1.82
46 VICR Vicor Corp. 1.13
47 VRNT Verint Systems Inc 0.77
48 WPRT Westport Fuel Systems Inc 2.32
49 YUM YUM! Brands Inc. 0.74
50 ZTS Zoetis Inc 0.74

 

Posted in blogs
6 comments on “Profiting from Seeking Alpha’s Undercovered Stocks
  1. Solid says:

    Hi Georg,
    thanks for this new model. Another innovate approach of yours.

    Two questions:

    1. What is the ranking based on (in broad terms)?
    2. 50 stocks is a lot to buy. Can you run this model with buying only 25 stocks or even/uneven numbers, which is then a more managable number?
    3. How often are the stocks replaced (average holding period)?

    Thanks.

    • geovrba says:

      1.Ranking system is based on growth, quality, value, sentiment, and technical factors.

      2.We will not feature this model on iM. 50 positions is far too high for our members, and also holdings are not equal weight. We have it on P123 as a designer model which should become live end of Nov-2019.

      The idea is to demonstrate that there is value to be had from Seeking Alpha’s listings. You can download the list from SA and design your own model with fewer positions. Hint: You can even do better by having a universe consisting of the under- and overcovered stocks.

      3. Avg Days Held = 393. Very low turnover.

  2. randyfloyd says:

    i’m bummed to see that this model will not be available on iM.
    regardless, the high number of stocks is not unmanageable these days. there are some brokerages out there that offer free trades, such as robinhood and M1. M1, in particular, does the trading for you. instituting a 50-position portfolio of equal weight such as this would take about 5-10 minutes of setup.

    • geovrba says:

      We will try and reduce the number of positions for this model and possibly we have something we can use at iM. The current model’s positions are also not equal weighted.

      • randyfloyd says:

        re: equal weighting — oops, my bad. it would, however, still be easily manageable in that M1 brokerage i mentioned.

        re: a model for iM — sounds good! hoping for the best

  3. Solid says:

    Hi Georg,
    thank you for the numbers above.
    Yes, a more manageable 20-25 stock portfolio here on IM would be great.
    Looking forward to it !

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