The Portfolio123 screener is typically used to find stocks or ETFs with specific characteristics, or as decribed in the last post, to get a handle on current/future trends. But the screener is also a very convenient tool for evaluating stock factors for use in ranking systems.
Stock market analysis fueled by Portfolio123.
Today, I am going to examine some analyst estimate factors, in the hope of determining the best factor to use for a ranking system.
Start this exercise by opening up a new screen. The stock universe is the S&P 500 Index. Quick Rank will be used for ranking. Quick Rank bypasses the use of a pre-defined ranking system, allowing the user to experiment with ranking system factors in a fast, convenient way.
The Method is set to Long/Short with maximum number of stocks set to 100 (applies to both the long and short sides). This approach will test a large number of stocks for both the high end and low end of the stock factor, a much more exhaustive test than simply looking at the top ten or twenty stocks.
% Earnings Surprise Latest Quarter (Surprise%Q1)
Now browse the reference under ESTIMATES until you find Surprise%Q1 (Earnings Surprise (Estimated vs. Actual), 1 Quarter Ago).
Now go to the BACKTEST tab and set up the backtest as follows. Slippage and Carry Cost should be set to zero. Rebalance Frequency should be set to Weekly for this demonstration.
Note: Weekly rebalance should be used if you are developing a very high turn-over ranking system. 4 Weeks, or Quarterly are often better choices for most lower turn-over systems
Set the time period to the maximum that your account will permit. Click on RUN BACKTEST to process the historical statistics.
The output for the factor Surprise%Q1 is shown below. As you can see, the results are quite disappointing.
Below are test results for several other analyst estimate factors.
% Sales Surprise Last Quarter (SalesSurp%Q1)
Long Term EPS % Growth (LTGrthMean)
Average Recommendation (AvgRec)
This factor is tested in the contrarian state (higher is better).
13 Week Change in Average Recommendation
Total Sum of EPS Revisions Last Week (TotRevisionsLastW)
Run this last factor just to see that I am not totally wasting your time :-)
Finally, a an analyst estimate factor with a good, reliable output, giving positive results while holding the top 100 stocks long and the bottom 100 stocks short.