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A Stock Picker Hits His Stride

April 15, 2010 11:20 AM EDT
According to Ronnie Moas, the markets have a mind of their own and no one knows exactly what they are going to do, but the founder of Standpoint Research told Street Insider just how he has been able to deliver consistent performances annually as one of Wall Street’s most accurate analysts.

Moas founded Standpoint Research in 2003 once he completed development on his 155-variable valuation and diagnostic model which he uses to formulate investment recommendations. He also uses subjective and fundamental overlays to catch potential value traps that are oftentimes missed by computer models.

"We've succeeded where other research firms failed that were relying on a computer to pick stocks for them," he said.

The 155-variable valuation and diagnostic model used by Standpoint is not considered by Moas as a full-proof stock picking machine, but instead the model allows Standpoint to cut a few hundred names down to a couple of dozen.

"The computer is just like a really high-powered filter for us," he said.

Once the valuation model has done its job, the team at Standpoint Research is able to take the remaining stocks through the rigorous fundamental and subjective overlay process to find those which will be recommended to clients in Standpoint’s weekly reports.

The firm focuses on stocks with a market capitalization of at least $400 million, and 90 percent of the (more than 300) recommendations that Standpoint has made over the last seven years have a market cap of at least $1 billion.

"We usually look at the relative strength of a stock as a contrarian indicator when it is at the extremes." Usually when a stock is in the bottom 10 to 15 percent on relative strength we see that as an over-reaction to bad news and a buying opportunity if the name is scoring well on most of the other variables."

The process is not only working, it is thriving for Moas. Standpoint is currently ranked 7th out of 184 firms according to Yahoo! Finance which has been tracking the company since October 2008 and has 78 recommendations on file.

Standpoint has also been able to beat the S&P 500 by 300 basis points on average for the past seven years, and that is an impressive figure on a risk-adjusted basis, because the firm is diversified across all ten sectors with their recommendations, is risk averse and does not take big sector bets.

Moas sees the current market climate as a stock picker’s situation as he believes that right now there are a lot of stocks that are overvalued, and conversely there are a lot that are undervalued.

"For the last year anything that you went into went up, and in many instances it was the junk stocks that went up and not the quality names."

Currently Standpoint Research has 74 open recommendations, while at the bottom of the market around one year ago, the firm had nearly 100 open recommendations, which was a record level for Standpoint. As the market appreciates, the firm is dropping the high-beta names that it bought a year ago.

"Obviously, we don't see as much value in the market here, and it's harder for us to find something we like at this stage of the game as opposed to six months or a year ago."

The firm is however holding on to some high beta names at this point, only to not get left out if the market rally continues, a situation that Moas believes no one can predict at this time.

Right now Standpoint is overweight in the telecom, industrials and health care sectors, while the firm is underweight in financials and technology.

Moas said that it is hard to make recommendations on the long side with the market the way that it is currently. If the market turns downward, virtually all stocks will go down, so Standpoint has been recently biased towards defensive names.

However, some of the latest recommendations to watch from Standpoint include GameStop Corp. (NYSE: GME), Overstock.com Inc. (NASDAQ: OSTK), British Petroleum PLC (NYSE: BP), Dell Computers (NYSE: DELL), Hudson City Bancorp (NASDAQ: HCBK), Biogen Idec (NASDAQ: BIIB) and Harris Corp. (NYSE: HRS).

Moas noted that many of his recommendations have run up substantially recently and it would be hard to recommend them now as if the firm was initiating coverage at this time.

Standpoint was the first firm to initiate coverage on Research in Motion Ltd. (NASDAQ: RIMM) this year with a Buy recommendation, before the rest of Wall Street seemed to jump on the bandwagon. The firm recommended RIMM at $63 and Moas currently sees another $10 in upside for the smart-phone maker.

Moas recently ran the S&P 500 through the Standpoint Research computer model on Monday and RIMM ranked # 2 (out of 500) before passing the fundamental and subjective overlay process. Standpoint currently has an $80 price target on the maker of BlackBerry devices for the rest of 2010 and Moas sees the stock jumping to $90 in 2011.

Looking forward to the next year's market movement, Moas said, "I can give you 50 reasons you should be selling stocks right now, and 50 reasons you should be buying. It is impossible to know how this is going to shake out."

On the web http://www.standpointresearch.com

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