Move Toward High Quality Stocks For Late Stage Bull Market (27 Stock Selections)

Date: Thursday, July 24, 2014 3:58 PM EST

A basic investment concept is to that high quality stocks fare better in down markets than low quality stocks, and therefore in late stages of a Bull market with generally fully valued stocks, tilting equity allocations toward high quality is prudent.

Accordingly, we set out to identify high quality stocks.  We know that sources such as S&P and ValueLine render quality ratings, but they are each a “black box” to a great extent, and we wanted to test quality using some other criteria as well.

We made the assumption that high quality could be identified by:

  • trading liquidity
  • strong balance sheets
  • revenue growth
  • long unbroken strings of dividend payment and increase
  • wide moats against competition.

With those conceptual criteria in mind, we applied these specific filter criteria to all stocks traded in the United States:

  • Wright’s investment grade rating minimum “BBB4″ (see ratings description) for liquidity, financial strength, profitability and growth, based on 32 factors (577 passed filter)
  • Member David Fish’s Dividend Champions, Challenger or Contenders (“CCC”) – stocks that paid and increased dividends each year for at least 5 years; some did for decades (543 passed filter)
  • Morningstar “Wide Moat” designation (258 passed filter)
  • Revenue growth over each of 5, 3 and 1 years at least 3% (1796 passed filter)
  • Dividend growth over each of 5, 3, and 1 years at least 3% (657 passed filter)
  • Four part Balance Sheet  filter (1454 passed filter)

Four part Balance Sheet filter:

  • Tangible equity increased at minimum 3% annualized rate from 5th prior fiscal year to most recent completed fiscal year
  • Total Liabilities/Tangible Assets not more than that ratio 5  fiscal years ago
  • Current Ratio >= 0.9
  • Quick Ratio >=0.7

To understand the size of the universe we filtered, consider these sources with more than a combined 8,500 stocks:

1 2 3 4 5


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