Developing a Strategy
Over the past few months I have taken a stronger interest in developing a long/short strategy where I use the Motley Fool screens to identify the most undervalued and overvalued companies trading today. While the screens typically lead me to red thumb stocks with high debt, large moves in the past 52 weeks and low current ratios, I also use the screens to pick companies with strong growth rates, high ROE, and underperformance over the past 52 weeks. I also value high insider ownership in companies such as GMCR.
I tend to look at macroeconomic trends such as job growth for picks such as PAYX and stricter regulation that led my red thumb tags on profit companies such as COCO and STRA. Some other picks are aimed at capturing favorable growth trends in China such as SDTH.
My holding period is typically several months but for companies with unique market positons such as ALKS I take a longer term approach.
The market has moved higher recently and the green thumb picks carry the day often, but for the times when we will see pullbacks I believe it is equally important to have short strategies in play where you can pick up some gains from the many companies on the street who underperform their comparative index.