The Big-10 Alpha investment strategy is driven by a proprietary model developed on the Limex Ai platform. The Limex Ai platform allows traders, investors, and analysts to build individualized models to generate trading ideas using powerful machine learning-based infrastructure. See the end of the report for more details on how to use Limex Ai.
Weekly Performance: Last week the Big-10 Alpha portfolio lost a whopping 7.58% against a 0.92% loss for the S&P500. Despite the weekly lag, the portfolio maintains a 1.19% profit v 4.47% benchmark loss over the past 3 months, although it now lags over the past month with a 6.9% loss v 4.2% loss for the S&P500.
The portfolio was hurt by growth-driven SPOT (down 12.5%), DASH (10.3%), ISRG (9.6%), and NFLX (down 9.1%). The only winner was ALL (up 0.8%). Overall, the market is rapidly de-risking thus growth-oriented stocks that have outperformed over the past 3- or 6-months have been hardest hit.
Ins-and-Outs: This week the model cut off two positions, ISRG and NOW, that share a very terminal-value heavy valuation. Both companies are ramping up their business footprint, for which they are net capital consumers and are expected to remain at that stage for a few years. Conversely, these names were replaced by PGR and WM that share high cash-flow generation with sticky revenue:
- ISRG Out – The model identifies the ratio of working capital-to-total assets as a drag, which is consistent with a net capital consuming business as Intuitive Surgical expands the reach of its Da Vinci robotic surgical procedures.
- NOW Out – Much like ISRG, the company is ramping out its reach in a competitive marketplace. Considering that, the value of the stock depends on the market’s goodwill and patience until a more stable revenue level is achieved.
- PGR In – dividend payer (although at a modest 1.75% yld), profitable at 37% RoE, somewhat rich 18x PE but 15% 5yr CAGR EPS dilutes the multiple. Haven in a flight to quality and risk-off trade.
- WM In – despite rich 30x PE, 10% EPS CAGR and 30% RoE support the stock. Revenue is very sticky, 1.44% yld gives some support, cash flow is highly defensive. Another haven in a flight to quality and risk-off trade.
