For his model portfolio, John Reese, editor of Validea, selects stocks based on the long-standing strategies of some of the market's most legendary investors. For his more aggressive idea for 2019, he looks to an low-tech transportation sector play.
Miller Industries (MLR) is a small cap-stock (about $300 million in market capitalization) that makes tow-trucks and much of the ancillary equipment necessary to get a car out of a ditch. If you’ve ever had a flat tire and called the auto club, then you’ve seen their products.
Miller Industries scores high on my model based on the investment approach of the quintessential quant, James O’Shaughnessy. In simplest terms, O’Shaughnessy’s model is a marriage of a growth strategy and a value methodology.
In his 1996 book What Works On Wall Street, he termed this marriage the “United Cornerstone”. The United Cornerstone approach seeks to produce the highest rate of return possible for the lowest amount of risk.
It seeks to identify stocks with three important characteristics: persistent earnings growth; a low Price-to-Sale Ratio (or PSR); and, high relative strength. Miller Industries passes on each screen.
The firm’s long-term earnings growth rate stands at an impressive 21.7% and its PSR is a miniscule 0.40. Recently, Miller Industries has produced solid outperformance relative to the broader market and passes on one of the most important points O’Shaughnessy discusses in his book.
He looks for high relative strength because “winners keep winning and losers keep losing.” As of this writing, Miller Industries relative strength stands at a firm 74.
In its most recent annual report Miller Industries discussed having a strong backlog of demand. At the end of 2018 the company completed the expansion of its factories in Tennessee to address that backlog, which suggests to me that their history of persistent earnings growth may well continue throughout 2019.
Subscribe to John Reese's Validea here…