New Model Portfolios: Historical Low P/S Ratios and Historical Low P/B Ratios

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Jan 05, 2010
On the New Year’s day of 2010, we released the new value screens for high quality companies that are at historical low P/S ratios and P/B ratios. In order to track the performances of these screens, we also created two new model portfolios. The performances of the model portfolios will be calculated daily.

Each of the portfolios contains the 25 stocks with the lowest P/S or P/B ratios relative to their historical values. The business predictabilities of the company business are at least 4-star rated.

Since we use the single factor of how close the P/S or P/B ratios of these stocks are relative to their historical lows, we did not limit the market cap of the stocks. Therefore the stocks are quite diversified.

The reason we limit the selections to the most predictable companies is because we think that the market valuations of predictable companies have higher chances of reverse to the mean.

If you are not familiar with GuruFocus Model Portfolios, here is the introduction again. In addition to the two new model portfolios we introduced this year, we have also incepted 6 other model portfolios:

  1. Most weighted: Top 25 most weighted stocks in the portfolios of a selected group of Gurus

  2. Broadest owned: Top 25 most popular stocks in the portfolios of a selected group of Gurus

  3. Consensus Picks: The top 25 stocks that are bought by the most number of gurus
  4. Guru Bargains: Stocks that bought by gurus but the price went down

  5. Buffett-Munger Screener 25: These are the high quality companies that young Buffett-Munger would buy. The companies grow their sales and earning consistently, their profit margin is stable or expanding, and appeared to be undervalued.

  6. Top 25 Undervalued Predictable Companies: These companies are undervalued based on DCF model. The portfolio consists of the top 25 most undervalued on the day of rebalance.

All these model portfolios are updated once a year at the beginning of every year. The best performing portfolio was the Top 25 Undervalued Predictable Companies, these 25 stocks gained 56% in average in 2009.

These are the links to the two new model portfolios:

  1. Top 25 Historical Low P/S Ratio Companies

  2. Top 25 Historical Low P/B Ratio Companies