20 cash-generating stocks large investors are scooping up while they’re cheap, according to a quant strategy that filters for quality companies
- Quant funds use statistical and mathematical models to make trades.
- Fintel.io filters stocks by quality, value, and positive fund sentiment to do something similar.
- These 20 stocks scored highest in all three categories combined.
You get what you pay for, and if something is cheap, there’s probably a reason for that.
Unless you’re strategically scouring the web for high-quality stocks at low prices, in which case you might be getting a good deal.
But how can an investor tell the difference between a well-priced stock and one that has been dumped for a reason?
One method is to sift through company balance sheets. You can also take a cue from quant funds, which use statistical and mathematical models to inform their trades.
When he created the equity research platform Fintel.io, Wilton Risenhoover attempted to do just that.
He developed a model that uses accounting data to identify companies with strong fundamentals that generate cash and have large moats, indicating significant competitive advantages over their peers. He refers to it as the Quality plus Value Scoring Model, or the QuantSoft Score.
The average earnings before interest and taxes (EBIT) for the previous 12 months divided by the current total enterprise value (TEV) is used to calculate value in this model.
The quality score is based on three years of revenue growth, three years of average operating cash return on invested capital (OCROIC), and three years of change in OCROIC.
To eliminate bad apples, the model excludes companies with declining revenues, net income, and cash flow from operations, as well as those with net income less than zero.
A filter for stocks in the QuantSoft list that funds are accumulating adds another layer of conviction. The QVO score is calculated by combining quality, value, and positive fund sentiment. This proprietary metric ranks companies from 0 to 100 based on how well they perform in each category.
The following is a list of the top 20 US stocks in Fintel’s database based on QVO.
