Sunday, July 28, 2013

The Stock That Pays You Back

In the Consumer Finance sub-industry of the Financials sector is... you guessed it:

Discover Financial Services (DFS).

Otherwise, I'd probably be saying "Don't Leave Home Without This Stock" or "What's In Your Portfolio?" or... I don't know what H&R Block's slogan is!?!

Moving on.

All of the ratios that I use to rank the stocks within the S&P 500 Index and then their respective sectors and sub-industries are saying the same thing for this group, so I'm only going to publish one of the ratios today.

The Sortino Ratio

RankSymbolCompanyAverage Weekly Excess Return %Downside Deviation %Sortino Ratio
1 DFS Discover Financial Services+0.49%2.22%+0.2216
2 HRB Block H&R+0.32%2.55%+0.1240
3 AXP American Express Co+0.15%1.53%+0.1008
4 COF Capital One Financial-0.02%2.34%-0.0082

And just so we're clear, when I say that Discover Financial Services is "The Stock That Pays You Back," I am not talking about dividends.

I'm talking about increasing stock prices.

To that end, let's take a look at my current trading signals for each of these 4 stocks:

SymbolCompanyBuy Signal DateBuy Signal PriceClosing Price 7/26/2013Current Trade Return %
DFS Discover Financial Services4/19/2010$15.75 $49.45 213.97%
HRB Block H&R7/9/2012$15.91 $30.49 91.64%
AXP American Express Co1/30/2012$51.38 $75.34 46.63%
COF Capital One Financial5/6/2013$59.51 $68.76 15.54%

That's right, you would have had to buy DFS 3+ years ago to get all of that that roughly 214% gain...

Does anybody (besides Warren Buffett) actually hold stocks that long anymore?

I do.

Personally, I think less trading is better trading.

I like long-term capital gains.

I don't like transaction costs and I really don't like paying taxes.

But that's just me. 

Disclaimer: I do not own any of the stocks mentioned in this post nor do I plan to open any positions in any of these stocks in the next 72 hours.

Sunday, July 21, 2013

The Best Oil & Gas Exploration & Production Stock in the S&P 500

Is Range Resources (RRC).

And if it's all the same to everyone, I think I'm just going to let the numbers do the talking from now on.

Let's start with the Omega Ratio, which is a risk measure that divides the Cumulative Weekly Gain % over the past 10 years of trades by the Cumulative Weekly Loss %.

RankSymbolCompanyCumulative Weekly Gains %Cumulative Weekly Losses %Omega Ratio
1 RRC Range Resources Corp.+1201.52%-864.68%1.39
2 EOG EOG Resources+959.53%-691.68%1.39
3 SWN Southwestern Energy+971.12%-708.67%1.37
4 PXD Pioneer Natural Resources+1058.07%-777.25%1.36
5 OXY Occidental Petroleum+872.22%-658.58%1.32
6 BTU Peabody Energy+733.28%-564.31%1.30
7 CNX CONSOL Energy Inc.+796.07%-633.13%1.26
8 APC Anadarko Petroleum Corp+775.38%-627.05%1.24
9 COG Cabot Oil & Gas+993.40%-805.69%1.23
10 WMB Williams Cos.+343.27%-279.55%1.23
11 MRO Marathon Oil Corp.+587.00%-478.99%1.23
12 NBL Noble Energy Inc+608.82%-504.71%1.21
13 DNR Denbury Resources Inc.+802.69%-678.90%1.18
14 APA Apache Corporation+308.12%-266.46%1.16
15 DVN Devon Energy Corp.+784.40%-708.89%1.11
16 NFX Newfield Exploration Co+724.32%-695.67%1.04

Next up is the Sortino Ratio. It divides the Average Excess Return % by Downside Deviation % (<0.22% weekly).

RankSymbolCompanyAverage Weekly Excess Return %Downside Deviation %Sortino Ratio
1 RRC Range Resources Corp.+0.66%2.94%+0.2226
2 SWN Southwestern Energy+0.64%3.11%+0.2053
3 EOG EOG Resources+0.54%2.67%+0.2034
4 PXD Pioneer Natural Resources+0.54%2.85%+0.1906
5 OXY Occidental Petroleum+0.37%2.27%+0.1635
6 BTU Peabody Energy+0.53%3.58%+0.1489
7 CNX CONSOL Energy Inc.+0.49%3.69%+0.1324
8 APC Anadarko Petroleum Corp+0.32%2.54%+0.1263
9 COG Cabot Oil & Gas+0.39%3.14%+0.1252
10 MRO Marathon Oil Corp.+0.25%2.22%+0.1141
11 NBL Noble Energy Inc+0.24%2.24%+0.1092
12 WMB Williams Cos.+0.22%2.09%+0.1073
13 DNR Denbury Resources Inc.+0.31%3.26%+0.0944
14 APA Apache Corporation+0.20%2.65%+0.0750
15 DVN Devon Energy Corp.+0.15%2.45%+0.0631
16 NFX Newfield Exploration Co+0.07%3.22%+0.0224

This is obviously a closer race than the Biotechnology sub-industry, where Gilead Sciences was (and still is) clearly the best stock in the group.

Range Resources is neck and neck with EOG Resources based on their Omega Ratios, but EOG Resources slides to third behind Southwestern Energy when it comes to the Sortino Ratio, so I think we can safely call Range Resources as the winner.

Disclaimer: I do not own any of the stocks mentioned in this post nor do I intend to open any positions in any of these stocks in the next 72 hours.

Sunday, July 14, 2013

What's the best Biotechnology stock to trade in the S&P 500?

I'll just go ahead and get my disclaimer out of the way up front and say that I do not have any open positions in any of the stocks mentioned in this blog, nor do I intend to open any any of these stocks in the next 72 hours.

Glad that's out of the way.

So, until about 3 months ago, I never asked myself which Biotechnology stock in the S&P 500 would be the best to trade.

The universe was just too big. So many stocks to research and trade, so little time.

But now I know how to write code.

And the universe just got a lot smaller.

Or my head got a lot bigger...

Either way, I wrote a program in Python that ranks (at the push of one button) all of the stocks in the S&P 500, plus all of the sectors and sub-industries within the S&P 500, from top to bottom using historical return/risk ratios.

Sure, I probably could have bought a program to do what I wanted, but where's the fun in that? I like to re-invent the wheel whenever I get the chance.

My program uses the long-term trend-following algorithm for which this blog is named to generate buy and sell signals, and I've been trading for 10 years, so I run my tests back to the beginning of 2003. That seems like enough time/data to create some statistical significance. 

It will compute 10+ ratios so far, and for this post I planned to include tables for Sharpe, Sortino, and Omega Ratios, thinking the comparisons would be interesting.

But on second thought, that's probably too much information.

For now, let's just look at the results using the Omega Ratio.

To be honest, the Omega Ratio is kind of new to me, but I think it's interesting because the calculation (Cumulative Weekly Gains above the required rate of return / Cumulative Weekly Losses below the required rate of return) includes all of the returns in the distribution, which means it can account for the high risk/low probability fat tails that are not part of a normal distribution.

FYI - I'm using a 12% annual (0.22% weekly) required rate of return.

In any case, if anyone wants to see the results in Sharpe, Sortino, or any other ratio that you can think of, just let me know. I'll be happy to run and send that along.

Okay, so which Biotechnology stock in the S&P 500 is the best trade?

RankSymbolCompanyCumulative Weekly Gains %Cumulative Weekly Losses %Omega Ratio
1 GILD Gilead Sciences+615.26%-485.39%1.27
2 ALXN Alexion Pharmaceuticals+768.97%-621.65%1.24
3 CELG Celgene Corp.+242.25%-196.02%1.24
4 AMGN Amgen Inc+193.75%-157.01%1.23
5 LIFE Life Technologies+335.65%-312.81%1.07
6 BIIB Biogen IDEC Inc.+514.90%-486.40%1.06

Gilead Sciences?

That surprised me too. 

But there's a reason I research and trade with algorithms and quantitative data and not my gut.

My gut is not very smart.

So... anybody out there trading Gilead Sciences?