By Jeffrey Cohen
President, US Advanced Computing Infrastructure, Inc.
I received a request from a Twitter follower for an analysis of Corbus. I will produce this, and share it with membership, upon request.
I no longer own this equity. This would be provided as an investment advisor.
We prepared a detailed analysis of Rigetti Computing. This analysis will be made available to members of our firm (for a monthly fee of $250) upon request.
We completed our analysis of ATI Physical Therapy's Transaction Support Agreement signed and announced on April 17, 2023.
Members of our firm (subject to paying a $250/month membership fee) are able to request and receive our analysis.
By Jeffrey Cohen, President and Founder
US Advanced Computing Infrastructure, Inc.
We have traditionally given stocks 100% (this is a variable setting) credit for dividends paid. This means we assume that the day a stock no longer pays a dividend, also known as the ex-dividend date, its stock price will fall by the value of the dividend (ex-dividend date). Since our model is looking to find expected returns for stocks, we 'add back' the value of the dividend so the expected return is included.
During a time of stable pricing, low interest rates, and when dividends are scarce, this is a necessary adjustment. The difference between a stock paying a 2% dividend and one paying zero is immaterial, but imagine the master limited partnership (MLP) or the Real Estate Investment Trust (REIT) that could be paying 7% or 10% during a time could be very material.
So, we gave back 100% of the value of the dividend to the 'future expected return' of each stock, and the model ran well, giving us a mix of dividend paying and non-dividend paying stock in the optimal portfolio.
A few weeks ago, we removed a set of stocks that had 14% or higher dividend yields (actual dividends paid / average closing price).
This week we added them back to the list.
What we found is that the stock list has been dominated by common stocks that paid very high dividends in the past year, and where their stock price has fallen. This seems like a great idea, buy low and sell high, except that many of those dividends were likely one-time events. These were companies often enjoying a Covid-related windfall. In other cases, the dividend was 'normal' but the stock fell by a very large percentage, so that the previous dividend now looks enormous.
This week, the stocks selected by the model in the optimal portfolio were dominated by companies that had paid a high dividend, and we are uncertain whether those dividends would repeat.
We have turned off our dividend adjustment, and the stocks picked in our optimized portfolio still have risky stocks, but at least we don't have a dividend repeat risk.
This week's CQNS Long portfolio has 12 stocks held evenly, and we will be watching that portfolio carefully to see if the market is acting like it is expecting a rise over the next year.
We set our model to assume a 7.00% capital appreciation and a 1.63% dividend yield for all stocks (or a good proxy like 1/3 of each of the following: S&P 500, Nasdaq 100 and Russell 2000).
Good luck to all.
Episode 2: Make Smart Investments, f.t. $ATIP $YELL and $ATLX
1. Your first $10,000 per year goes into iSeries US Savings Bonds. This pays inflation plus 0.4%, currently 6.7%
2. Your next “some money” goes into 13-week US Treasury Bills. They paid (a week ago) 5.128% on a bond equivalent investment rate, or 4.85% flat rate.
3. Put the rest of your long-term investments into a highly diversified US equity fund or ETF (I use Vanguard F500), but you can also use Fidelity, Schwab, or others, or $SPY ETF.
4. Pay off all your debt. 100% of it. This way all the flow of interest is into your pocket, and you understand your financial position. You don’t over-spend. You don’t make consumption decisions based on what you can borrow, but based on what you have.
5. The market is very, very risk off. The edge of our CQNS model is only 11 ticks over $SPY.
The price risk, or volatility, of individual stocks is much higher than the price risk of the diversified market of US equities. This is why we say risk-off, and suggest diversifying.
This is why we are dipping or stretching for returns into high-risk equity investments like $ATIP $YELL and $ATLX short.
We posted our first video in a few weeks. Hope you like it.
The S&P 500 Equity Index ETF scores almost as well as the best risk adjusted portfolio we found.
Here is our best solution for US listed stocks that pass our data validation. This long portfolio was chosen from 3,394 common stocks.
-0.000074 ['AAPL', 'ADP', 'AFCG', 'AFG', 'AGNC', 'AMBP', 'AMZN', 'ANSS', 'ARI', 'AVGO', 'BITO', 'BKE', 'CFFN', 'COST', 'CSCO', 'CVI', 'F', 'FAST', 'FTAI', 'GOOG', 'HPQ', 'INTC', 'INTU', 'LLY', 'MC', 'MFA', 'MSFT', 'NFE', 'OMF', 'OTEX', 'PFE', 'PKE', 'PSA', 'RILY', 'ROK', 'RTL', 'SBUX', 'STT', 'TROW'] 39
It has a Chicago Quantum Net Score (CQNS) of 74 'ticks' better than holding all 3,394 stocks equally.
The SPY, or S&P 500 Equity Index ETF has a score of -0.000061, or 61 ticks better than holding all 3,394 stocks equally.
Today, active investors looking to maximize their risk-adjusted expected returns should stay fully diversified into the S&P 500 ETF.
So, what are we doing? We are long two very risky stocks that we think are dramatically undervalued by the market.
They are important companies to their customers, they earn significant revenues every day (brick and mortar firms with physical locations), and are working to make incremental improvements to their operations to increase earnings enough to reduce their debt leverage ratios and return to profitability (not just positive EBITDA).
They are bankruptcy risk stocks that should do very well if the USA avoids a recession and the economy grows instead.
These are also stocks that are actively looking to manage their outstanding debt and are working with their lenders accordingly.
We are confident that these two investments will pay off, and we have a third company on our shopping list.
Stock Market BLOG
President and Investment Advisor Representative