In this week's Stockopedia Strategy Map article, Megan looked at the Contrarian Style of investing, Stocks that are both cheap and high quality. The Stockopedia Screening Tools make it easy to find potential QV candidates. Subscribers can simply screen for companies scoring highly on Value and Quality ranks. For this screen, I pick 90 for Value and 85 for Quality. (The Quality Rank measures a broader range of factors, so it makes sense to be slightly more relaxed on the criteria here.)
As of writing, this simple screen gives 37 results. However, at this point, I will exclude several industry groups. First, I am excluding anything to do with resource stocks. This kind of screen tends to select commodity stocks when they are at their most profitable. Unfortunately, this tends to be at the peak of the cycle. These may well be great investments, but it needs a different mindset to invest successfully in this sector. (I wrote about how to think about this sector here.) The same cyclicality characteristics also affect property and housing stocks, so I exclude these industry segments too.
Likewise, I have excluded Banks and Collective Investments because they require a different mindset to analyse. Perhaps controversially, I have also excluded Investment Banking and Professional and Commercial Services. The reason is that these are essentially people businesses, and as such, they often have low ratings and high returns on capital. This means they can often score highly on the Value and Quality Ranks. The reality is that the "assets" of these companies are the people, and these are not on the balance sheet. Often the returns of these types of businesses go to the employees, not shareholders, and hence they deserve to be cheaply rated.
Finally, I exclude companies whose primary listing is not in the UK.
The resulting screen has just six high-quality, great-value results, each of which is worth looking into in more detail:
Quiz (LON:QUIZ)
Quiz is an omni-channel clothing retailer. As mainly a provider of mainly partywear, the business was severely affected by COVID. So although they also sold clothes online, there was less demand for this type of clothing. Demand has now returned, but many of their concessions did not, as these were located in…
