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Survival of the Fittest!


The stock market is a remarkable place where there are two sides to every trade. So, are you the one that's going to eat or be eaten on a trade?

This article was originally published by

Earlier this month I spent a week camping deep in the Southern Indiana woods. With daytime temps between 90 to 105 degrees and little overnight cooling, it was probably the hottest camping trip I've ever taken. When it's that hot, you don’t really feel like moving much, so most of my time was spent just sitting and observing.

Now I've spent a lot of time outdoors, and I've watched countless nature programs on television, but when you actually sit down with the natural world for a few hours, you see how relentlessly competitive it truly is even in the sleepy Midwest.

Every animal I saw mammals, reptiles, insects, fish, birds were either eating or trying to avoid being eaten. I saw swallows and bats swooping down upon unaware insects, frogs hopping into the pond moments before a hungry snake slithered along, coyotes scavenging for anything they could find, a buck bounding away after my walking stirred him from his slumber and a falcon taking off for something unseen to me on the forest floor.

Another Form of Competition

Upon returning home, I realized how we now live in a kind of bubble, isolated and insulated from the struggles that early humans faced. In our modern cities, towns and houses, we've essentially removed any natural thing that could harm us. In the woods, I was getting bitten by much more than just mosquitoes.

But now, we've created safe environments with little to no discomfort or danger. I wondered: Where, then, do we actually face highly competitive environments? Sports, business and the stock market are the primary things that came to mind. Perhaps that's why we find these activities so exhilarating.

The stock market is a remarkable place where there are two sides to every trade. For the most part, you have someone who wants to own a stock that someone else doesn't. Think about this during your next trade: someone actually wants to own that stock you are selling and someone doesn't want that stock you are buying. Only one person is right, right? After all, rational people don’t go around selling stocks that they think will go up, do they?

So, are you the one that's going to eat or be eaten on a trade? It's not much more than a 50/50 prospect for the average investor.

How to Survive

Even the best investors become lunch some days, but what separates the predators from the prey is whether one is disciplined enough to follow proven strategies, access and use information and tools effectively, and refine and evolve their techniques. That's why I believe the Zacks Research Wizard is something every individual investor needs. The Research Wizard contains hundreds of pieces of data for each company, and it allows you to test to see what works and enables you to adjust your strategies to reflect changing market conditions.

Let's look at an example. Among the different market anomalies that exist, an approach that considers a combination of them is one of my favorites. Last September, I created a multiple anomaly strategy that's in the Research Wizard software. Here's how the strategy performed from 2002 to 2011:

What's more, the multi-anomaly strategy is up about 22% year-to-date. Since I created it in September 2011, the strategy is up 52%. How's that for an out-of-sample test?

At this point in my articles, I usually spell out the strategy's individual criteria in detail, but I don't want to give away the secret sauce and give something away that current users have access to. So I'm only going to provide general ideas including:

- Buys high volume, small cap U.S. stocks

- Includes only highly-rated Zacks Ranks

- Contains a measure of value

- Looks at estimate revisions

- Considers stock price changes

Here are five of the 10 stocks that passed the screen this week (7/20/12):

PHH - PHH Corporation

PHH Corporation provides business process management services for the mortgage and fleet industries in the United States and Canada. This small cap company rates as a Strong Buy on the Zacks Rank and has had positive earnings surprises in four out of the last five quarters. The stock has also experienced good recent price momentum and remains a good value.

AYR - Aircastle LTD

Aircastle Limited, through its subsidiaries, engages in the acquisition, lease and sale of high-utility jet aircraft to passenger and cargo airlines worldwide. With a Zacks Rank #1, this company has also seen positive earnings surprises in four out of the last five quarters. Earnings projections for the next two years have also been increasing. Aircastle also remains a nice value and pays a healthy dividend.

DY - Dycom Industries Inc.

Dycom offers engineering services, including the design of service area concept boxes, terminals, buried and aerial drops, transmission and central office equipment, fiber cable routing and design for telephone companies. This company has had five straight positive earnings surprises averaging 62%! This series of earnings surprises has lead to increasing future earnings projections and, therefore, a Strong Buy Zacks Rank.

BWS - Brown Shoe Co.

Brown Shoe, a St. Louis-based company, operates as a footwear retailer and wholesaler in the United States, Canada, China, and Guam. This stock is up over 14% since I first recommended it just six weeks ago. The company has a great Zacks Rank, good valuation compared to industry peers and has seen recent earnings estimate increases. The price momentum looks good and the stock pays a nice dividend to boot.

CGI - Celadon Group Inc.

Celadon, an Indianapolis-based company, provides transportation services between the United States, Canada and Mexico. In terms of valuation, the stock is relatively inexpensive compared to the market averages. Amazingly, Celadon has had a positive earnings surprise in each of the last six quarters. Earnings projections have also been trending up as has the stock price. The stock is also rated a Strong Buy on the Zacks Rank.

You need an investing tool

For survival in the wild, many consider a knife to be the most important tool. But if you find yourself dealing more with the perils of the stock market, you need a tool designed and built for the individual investor.

The Zacks Research Wizard contains hundreds of different data items available for you to test or use one of our pre-built strategies like the Multi-anomaly. I urge you to use it to navigate what the market may send your way.

Starting today, you are invited to use it free of charge. You'll have 14 days to create, tweak, and backtest your strategies. At the same time, you can see the latest picks from pre-loaded winning strategies with average gains of up to 67.4% per year.

Kip Robbins is a Quantitative Analyst with He analyzes screens and strategies for Zacks customers and for use in Zacks Research Wizard which empowers individual investors to use market-beating screens, build their own, and backtest their results.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at:

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