Lately I have received several questions about the Stock of the Week. Each Sunday I conclude the subscriber newsletter with a new Stock of the Week (SOTW) selection. These are companies that range from large caps to small caps (minimum market capitalization of $250 million and average daily volume of 250,000 shares) that I believe have excellent short-term potential and solid long-term potential.
As I state in the newsletter, each week I automatically ‘sell’ the selection from the previous week and replace it with a new selection, regardless of my opinion about the desirability of holding the Stock of the Week beyond the weekly time frame. The result is that I am highlighting a new opportunity each week rather than trying to optimize the holding period for specific stocks.
This approach has led to some interesting results, which I have summarized in the chart below. First, of the 24 SOTW selections, 17 have been profitable at the end of the first day after they were recommended, with an eye-catching mean return of 3.4% in that first day. Excluding the current selection, which was up 7.7% yesterday, 15 of the 23 SOTW selections have been profitable at the end of the week, with a mean return of 2.3%. Not surprisingly, the variation in the weekly returns is fairly high, ranging from +15.5% to -14.8%, with a median weekly return of 3.7%. As of yesterday’s close, the sequential return of all SOTW selections from the March 30, 2008 inception was 84.4%.
It is important to note that the SOTW selections have not necessarily been strong performers following the initial one week holding period. The graphic shows one stock that is down 64% since the SOTW designation and two other stocks that have fallen in excess of 40%. Obviously any approach that beats the indices by such a wide margin must entail a great deal of risk – and the SOTW is no exception. The SOTW performance history does suggest, however, that it is possible to rack up big winners in a bear market, even while picking stocks that are generally falling in concert with the market.
Finally, I feel obliged to add that I certainly do not expect the SOTW selections to continue to match the performance from the first five or so months, but I am cheered by the numbers that have been put up so far and the by the interest this feature has generated.