Goal
Our ranking system is designed to separate good stocks from bad. The objective is to pick stocks that will outperform over the next 3-12 months.
The Model
The ranking system uses a factor-based model to grade stocks. The factors are primarily financial variables and ratios (i.e. Sales / Inventory). However, the ranking system also includes price-based technical criteria. Importantly, each factor in our model has historically had a strong correlation with future stock returns. For example, one of the model inputs is operating cash flow. We have found that stocks with high operating cash flow typically outperform those with low or negative operating cash flow. Below is a sample of several financial variables and ratios that are input into the model:
