- 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.
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.
Model’s current holdings of undercovered stocks
|1||A||Agilent Technologies Inc||0.61|
|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|
|14||CODA||Coda Octopus Group Inc||5.01|
|16||CVSI||CV Sciences Inc||2.24|
|17||CYH||Community Health Systems Inc||3.59|
|18||DGX||Quest Diagnostics Inc||1.19|
|20||GRVY||GRAVITY Co Ltd||2.5|
|21||HLT||Hilton Worldwide Holdings Inc||0.51|
|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|
|29||NCLH||Norwegian Cruise Line Holdings Ltd||0.92|
|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|
|37||SGH||SMART Global Holdings Inc||1.8|
|40||SUP||Superior Industries International Inc.||7.6|
|42||TEL||TE Connectivity Ltd||0.5|
|43||TENB||Tenable Holdings Inc||1.19|
|44||TMO||Thermo Fisher Scientific Inc||0.65|
|47||VRNT||Verint Systems Inc||0.77|
|48||WPRT||Westport Fuel Systems Inc||2.32|
|49||YUM||YUM! Brands Inc.||0.74|