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This video’s transcript was generated by a third party. It is not curated or reviewed and is provided for convenience and information purposes only. The accuracy and completeness of the transcript are not guaranteed.
Daniel Snyder: Hello everyone. I’m Daniel Snyder from Seeking Alpha. Thank you so much for taking the time to hang out with us here today. We are diving into the world of the Quant system with none other than Steven Cress. All the questions that you have ever had about factor grades, dividend grades, or REIT grades, we are diving into it here today. But before we dive into conversation with him and get the back history of the Quant system or what is the Quant system and how does it work and how does it refresh and all of that great data, let’s go ahead and get a quick legal disclaimer out of the way here.
We are not advising you personally concerning the nature, potential, value, or suitability of any particular security. You alone are solely responsible for determining whether any investment, security, strategy, or any product or service is appropriate or suitable for you based on your investment objectives and personal and financial situation.
This presentation is for information purposes only. Content is presented as of the date published or indicated and may be superseded by future events. It represents my opinions and Steven Cress’ opinions, which may not reflect the views of Seeking Alpha as a whole.
Past performance is no guarantee of future results. Seeking Alpha is not a licensed securities dealer, broker, US investment adviser, or investment bank.
And now with that out of the way, we’re going to dive into the man, the myth, the legend, Steven Cress, who, I mean, the mastermind behind the Seeking Alpha Quant. Let’s dive into the history a little bit before we dive into the platform today, Steve.
Lots going on, lots to talk about, especially data side of things, but the history of you and Seeking Alpha, because you actually developed this Quant system before Seeking Alpha acquired your company, CressCap, back in 2018, if I remember correctly. What’s the prior history of that? When did you get into the world of Quant? How did you leverage Quant in your previous, I know you were at Stanley for a while. Why don’t you just go ahead and share a little bit of that information with everybody today?
Steven Cress: Yeah. Absolutely. Well, first, thank you very much for organizing this today, and I think the timing is perfect for investors and potential investors to be looking at the market and looking at the Quant system. I’ve heard a number of talking heads on TV today saying, hey, this could really be the market bottom or close to the market bottom. So, absolutely terrific period to start looking at stocks.
In terms of my history, I’ve been on Wall Street for almost 40 years. 11 of those years, actually, I spent in the City of London working in finance as well. And my time in Quant really dates back to almost 2000. Shortly after the tech bubble, I started to devise systems for my clients when I worked at Morgan Stanley that were very quantitative oriented.
I worked in institutional sales at the time, selling equity research from our analysts to large institutional investors. And during the TMT era, a lot of the stocks, a lot of the banking deals really started to go belly up. So, clients were saying, hey, we need a better system than just investing in tech stocks. What do you have?
So, I started to devise my own Quant models at that period. And lo and behold, those models worked really well. Ended up spending about 13 years at Morgan Stanley and eventually ran a proprietary trading desk in quantitative strategies. So that was really the beginning of it, and necessity is the mother of invention. Stocks weren’t working at the time. There were a lot of fears in the market. So, I wanted to develop a system where we could really cut through the noise and just look at companies that had really good fundamentals. So, I started to create the Quant system really way back then, so almost 26 years ago.
DS: And so, has it evolved over the years, or is it still the original Quant system that you developed all those years ago?
SC: No. It absolutely evolves. I don’t want to say every day, but the beauty of Quant is it’s like searching for the Holy Grail. You’re constantly out there. You’re constantly trying to improve your methods, improve your parameters, your criteria. So, we do constantly tweak the Quant model, especially products that we create that are based on the Quant model. A lot of the Quant system is very similar to what we established here at Seeking Alpha back in, I want to say, around 2018.
So, the essence of the core model is the same, but we’ve developed products off of it, Dividend Safety Grades, Alpha Picks as a portfolio product, the PRO Quant Portfolio as a product, ETF grades, REIT grades, and all those tend to have some metrics and parameters and criteria that are a little bit different. And especially with the portfolio of products, we really back-test those factors that we assess in trying to get the best performance that we possibly can.
DS: Yeah. Now, we’re going to dive into as much as we can here today. Obviously, there is some proprietary information within the Quant system that we won’t be able to answer, but everyone that – you’re turning into this video live with us, if you have questions, make sure you’re dropping them in the chat. We’re going to try to get to questions here after a little bit of a presentation walking through the platform and the data behind the Quant system and the back-testing and everything like that.
So, Steve, why don’t we go ahead and jump in? I think we should go to the platform. I think, I mean, everybody, whether they’re new or they’re familiar with Seeking Alpha, you see the Quant system on every single Symbol page. You see it all across the site, but today, specifically, we’re going to highlight the factor grades, the dividend grades, and the REIT grades. And then you have another webinar later this month where you’re going to be joining Fred from the Product team and be talking about the screeners and portfolio health check and some of the other things we have on the site. But to get things off, maybe we can dive into, like, the Quant Grades, right, and the trifecta.
SC: Yeah. So, I thought what I would do is, I want to highlight to people where they can get more information. So, after this webinar today, they’ll be able to find a lot of this on their own. So, if you look on the right hand side, this is a stock page or you can refer to it as a symbol page. It’s really the core to the Seeking Alpha Premium. It pulls a lot of different information together. You can find contributor articles over on the left hand side. You can find news from our incredible news team. And then the right side, you find the Quant grades.
So, what I want to start with is, if you see there’s a question mark over here on factor grades for the Quant System, and you’ll see there’s a little snippet of information. If you click on the Quant ranking of factor grades, that will actually bring you to an article that I wrote. And this will help provide you with a little bit of how the factor grades work. And I’m just going to walk you through this right now. So, what are Quant ratings and what are factor grades?
Well, at Seeking Alpha, I often tell people the Quant system is very similar to what a fundamental analyst does. An analyst that works at Morgan Stanley or Goldman Sachs or Merrill Lynch, they are fundamental investment research analyst. And they look at core investment characteristics such as value and growth and profitability. Our Quant system is really very similar where we look at the same type of investment characteristics that an analyst looks at.
The only difference is, as a human being, as an analyst, having been an analyst myself, when you cover a number of companies and you have to write research on those companies, you’re really only capable of maybe covering 15 to 20 stocks within a given sector. And when you write research on those particular stocks, maybe you can write research, a good large report, once a month and then just update a lot of information. So, it’s fairly infrequently you get those written research reports.
The beauty of the Quant system is that we look at the same investment characteristics, but we upload data from cash flow statements, income statements, balance sheets, and hundreds of different financial metrics every single day. And when we upload that, we take those metrics and those data points for a company, and we compare it to all the other companies in this sector. And this allows us to rank the best companies from the weakest companies. And in performing that ranking, we could actually assign a stock a Strong Buy, a Buy, a Hold, Sell, or a Strong Sell based on where it falls.
So, the real difference is, we have the ability to basically assess and provide a directional recommendation on thousands and thousands of stocks on a daily basis, where most conventional analysts can just do a couple updates every month on a particular stock. So, you’re getting near real time information in terms of that directional recommendation, and we have a really good track record. So, that is the first thing I want to describe. What makes Quant different than a fundamental analyst? It’s basically taking the same investment characteristics, but adding computer processing, putting it on steroids, and being able to generate large amounts of that data every single day that point to those recommendations.
So, scroll down. You’ll see how is this useful for investors. Well, it’s very useful for investors. We have portfolio tools where you could load up your portfolio onto the platform so you could – every single day, it gives you the ability to get a fresh recommendation on the stocks that you own. So, you’ll see the overall rating. Is it a Buy, is it a Sell, or is it a Hold? But in addition, when you look at those factors such as value, growth, profitability, you’ll be able to see on those individual metrics where they stand versus the rest of the sector. You get an instant characterization.
So, I designed this system. I’ve been working on it basically since the year 2000. I actually created my own company. I had a hedge fund for a couple of years that was based on Quant strategies. And when I was running the hedge fund, I also developed a fintech company that Seeking Alpha liked so much they bought the company, and that’s what has brought me to Seeking Alpha. I don’t think I added that before when I was talking about my history. So, probably an important point there. That’s how I joined Seeking Alpha. They purchased my company.
So, back to how our Quant system works, which stocks are covered and which aren’t? We cover just about all stocks in the United States and ADRs that trade in the United States as well. And when we look at a company we do look at historical data metrics but we also look at forward data metrics as well. So, when we look at forward data metrics, that means we’re looking at revenue growth, EPS growth, EBITDA growth. And what we do is we take the consensus of Wall Street analyst estimates when we’re looking at that growth. Companies that we do not cover often will find that there’s no Wall Street coverage. So, if there’s no Wall Street coverage on a company, we will not cover it in our Quant system.
We also do not cover stocks that trade on foreign exchanges. If there’s an ADR, American Depository Receipt, and that trades in the U.S., we will cover it. But if it purely trades on a foreign exchange, we do not cover it. So, that’s a little bit of information about the factor grades. What I really want to do is, take you to a specific stock so I can walk you through how it actually works. This stock is called Celestica. It’s a name that we’ve liked for quite a long time, and you can actually see how long that we’ve liked it. There is a Ratings tab, and we’re very transparent. You could see the stock is up 7.64% today. We have a Strong Buy.
If you clicked on the ratings tab, it will go back and show you the history going back three years. And, basically, every single trading day over three years, you could see what the directional recommendation was. And you could also see what our grade is on valuation, growth, profitability, momentum, and analyst EPS revisions. And these are the same grades that you find on the right hand side.
So, underneath the rating summary card and that rating summary card actually shows three independent ratings. These aren’t all quant. When you see SA Analysts, that is the consensus of the Seeking Alpha contributors and their recommendations. When you see Wall Street, that is a consensus of Wall Street analysts and their recommendation, and then we have our Quant system. And that Quant system, that Strong Buy grade is determined by the factor grades that you see underneath, the same factor grades that you found on the rating card. So, that rating card gives you a history going back three years.
If you’re looking at the right hand rail here, this shows you what the grades are right now, but the beauty of this is, you not only get to see what it is relative to the rest of the sector. So, if you’re looking at valuation, you see it’s a C. It’s pretty much in-line with the sector, but if you look at growth, you could see that instant characterization how growth is far, far stronger for Celestica versus the rest of the IT sector. Profitability is stronger. The momentum of the stock is stronger, and the analysts revisions are stronger as well.
But just to give you a little bit more color, not only do you see what it is now, you could see where the grades were three months and six months ago. And for the most part, Celestica has been fairly even. Valuation is basically unchanged going from D+ to C-. Growth has remained at an A-, which is much stronger than the rest of the group. Profitability has actually improved from B- to B+. So, as the company is earning more money, they’re actually becoming more profitable, and the analyst revisions is a B+ versus an A. So, what does that mean? What makes up these factor grades?
If I actually click on it, if I click on valuation, you could see all the underlying metrics that make up this overall valuation grade. Now, I will tell you, not all metrics are created equal. Some of these have a higher weighting in our model. So, for instance, as you’re looking at P/E versus price-to-sales versus price-to-book versus price-to-cash flow, we have back-tested each of these metrics, and we know which one has a greater predictive value in terms of what is beneficial to the stock in the future. So, we place a higher weight on the metrics that we have back-tested that should be basically a stronger investment metric.
In a nutshell, though, you could see where it is. The P/E in D territory is a bit expensive for P/E non-GAAP, little bit more attractive in-line for the sector on a GAAP basis, but what stands out particularly with the stock is, if you combine the P/E ratio with the growth, and that’s the PEG ratio, it’s an A-. So, if you’re looking at this one valuation metric, you could say to yourself, this company is actually at a steep discount to the sector, about 42%. So, when you actually combine growth with P/E together, it adds a different lens, and it shows you from that standpoint, it’s actually fairly attractive. So, that helps sort of…Yeah. Daniel, questions.
DS: Yeah. There was a question that came in about the difference between the two PEG ratios. You have a second, you could just touch on that?
SC: Yeah. So, GAAP would be generally accepted accounting principles, which is basically the standard that is used across the board and comes out from dictated by the SEC that most companies have to report on a GAAP basis. On a non-GAAP basis, many investors actually prefer to look at it on a non-GAAP basis because the numbers are diluted. And, basically, what that means is, if you have, say, a convertible, and at one point, that convertible will convert into equity, it reflects that as well. So, it’s more of a normalized number when you consider other share classes within the stock.
So, if you trade in the U.S., you have to report in GAAP, but many investors like to look at non-GAAP numbers. So, we provide both, and we provide a lot of different metrics here for valuation. We’re not looking just at P/E. As you could see, we have the PEG ratio. We have EV-to-sales. We have EV-to-EBITDA, EV-to-EBIT, price-to-sales, price-to-book, price-to-cash flow. We don’t like – we like diversification in our algorithm, so that’s why we look at a number of different valuation metrics. Especially in certain sectors, many of these metrics are more telling than other metrics. So, we like to have diversification across the model.
One thing that I will say about our model, our algorithm is we’re looking for companies that are collectively strong on value, growth, profitability, momentum, and EPS revisions. And that’s one thing that you could say, maybe it’s unique to our Quant model. There are a number of Quant models that just focus on momentum. Some just focus on value. Some just focus on growth, but we like to have what I refer to GARP, Growth at a Reasonable Price. So, we like a lot of diversification in our Quant model, and we have a good track record to show that that works.
Let me take us, just as an example, it’s another tab. Let’s go to the growth segment. So, one thing that really stands out about Celestica is, it’s straight A report card in terms of growth, whether you’re looking at revenue growth, EBITDA growth, EBIT growth, earnings per share growth, leverage cash flow growth, almost straight As across the board. Couple of the metrics at the bottom. And we’re metric heavy. We don’t look at just one single metric. We don’t put all our eggs in one basket. And as I mentioned before, we back-test each of these individual metrics to see which has a greater predictive value for the future stock price, so they are not all created equal. But the really good news is, with Celestica, the overall grade for growth is an A-. And as you could see, it has bone crushing growth, compared to the sector.
And in terms of the forward revenue growth, it’s 36% versus the IT sector at 10%. If you look at the bottom line growth, EPS growth, you’re looking at 52% forward EPS growth. And, again, that’s Wall Street consensus. So, that is consensus. So, there’s certainly many analysts that have numbers that are higher, some are lower, but the consensus is for 52% growth versus the sector at 15% growth. So, this company is just, it has monster growth on the top line and the bottom line. And as we could see, it’s becoming more profitable. Six months ago, compared to the sector it was a B-, and now it’s a B+.
So, if I look at some of the profitability metrics, we could see the return on equity is huge at 40%. So, again, these letter grades here, that provides you with an instant characterization how the company is versus the sector on that metric. So, it’s very telling, and it does it literally in a nanosecond. You know how it stands, compared to the sector. And 40% ROE compared to the sector at 6.8%, That’s a 493% premium. Return on capital, very strong as well. So, a number of metrics look very good. So, the overall profitability grade is a B+.
And if we look at analyst revisions, we could see here that over the last 90 days, 15 analysts have taken their earnings estimates up. So, this means they’ve actually have revised their existing estimates up. So, 15 analysts have revised their estimates up, and zero have revised it down. So, they’re really expecting it to have a good fiscal year in the upcoming quarter. 12 analysts have taken their estimates up. Zero have taken it down. So, Celestica being a stock that we really like. And I think that gives you an understanding from a Quant standpoint how we look at it.
And one other thing I’ll point out is, if you’re looking at this company, you could actually see the Quant ranking, compared to the other IT stocks. If you look here at the Quant ranking, you’ll see it says information technology. And then the industry that it’s in is electronic manufacturing services. So, within the sector, it ranks 14 out of 528 stocks. But within its industry of electronic manufacturing services, it actually ranks 3 out of 18.
And if you want to know who the number one company is, all you have to do is click on that, and it will show you that TTM Technologies is the number one company in electronic manufacturing services, and that has a Strong Buy with a Quant rating of 4.95, and Celestica comes in at 4.83. There’s one company above Celestica, which is RF Industries, all rated a Strong Buy. So, Daniel, let me see if you have any questions at this point.
DS: Yeah. There’s a lot of questions coming in, but I think from right now, maybe the best thing for us to do is continue to show the back test here of the Quant system and how it’s fared against Wall Street analysts, if you don’t mind…
SC: Absolutely.
DS: … click on that page. And then we’ll switch over, and we’ll start talking about dividend grades.
SC: Alright. So, as I said, we do have a really good track record using our Quant system. The essence is, again, we’re looking for stocks that are collectively strong on five investment characteristics, growth, value, profitability, EPS revisions, and momentum. And the point of showing this chart here, you could see, basically going back to 2010, the Quant Strong Buys, and what this reflects is, all the Quant Strong Buys and only the Strong Buys.
So, we’re looking at all the stocks, and we’re measuring the performance of the Strong Buys. If a stock were a Strong Buy and it fell off the next day, it would be taken out of this portfolio. So, this is not an investment product per se or an ETF, but the reason why I want to show it is to demonstrate how well the strategy works. And you could see going back to 2010, the Quant performance is up a whopping 4386% versus the S&P, which is up about 528% for the same period. And if you compare it to Wall Street Strong Buys, Wall Street Strong Buys are up only a 104% for that period. That’s a long time range.
We could make it a little bit more current, and we’ll look at the one year performance. And we could see the Quant Strong Buys over the last year are up 60% versus Wall Street analysts up 45%, and the S&P 500 up 26%. And this has been a very volatile year, and I’m really pleased to say that our Quant Strong Buys are up 4.29%. Wall Street analysts are just above water.
And when we’re looking at the S&P here, I want to also add that this is the S&P on an equal weighted basis, not market cap. If we’re actually looking at the S&P on a market cap basis, it would be down about 3%. So, on an equal weighted S&P level and the reason why we do that is all the stocks are equal weighted that we’re looking at in this portfolio of Strong Buys. So, it’s not market cap weighted, and we wanted to keep it apples-to-apples. So, we look at the S&P 500 on an equal weighted basis.
So, you could see whether we’re looking at the last year, year-to-date, going back five years, going back to 2010, the performance has worked really, really well. And if you scroll down, you could see, what some of the absolute numbers were. We have never had a year where we have underperformed the S&P 500 on an equal weighted basis, but we have other systems in place too. So, that tells you a little bit about how the Quant System works, but we also have Seeking Alpha dividend grades. And if you looked at the stocks that have a Strong Buy plus a dividend growth grade of an A+, you could see they have significantly outperformed the market since 2010 as well.
Outside of the dividend grades, we also have REIT Quant scores. And you could see going back to 2017 that our REITs Strong Buys have significantly outperformed the benchmark here, which is the XLRE ETF. I should say for the dividend one, we’re looking at the Vanguard Index, which is VIG. It’s one of the largest dividend ETFs that’s around. So, that’s why we use that as a benchmark. And if we scroll down after that, so you saw we had the REITs and the dividend grades as well. So, on a number of different types of asset classes, whether it’s dividends or REITs or just straight up stocks, we have some great Quant performance.
DS: Hey, Steve. Just jump in real quick. And correct me if I’m wrong on this, but these back-tests, just so everybody is aware, these were done in partnership with S&P Global. So, this isn’t us just trying to run data and make it seem like this is something that is not. We went directly to the data provider for them to help us run these tests, get the accurate data so that we could share with all of you, because obviously the numbers are very telling.
SC: Absolutely. And S&P, that’s – one of their key investment products is performance and risk attribution. So, we simply send over the trades that we have and we actually use their system. So, it’s a third party S&P Global. They’re very advanced at this. They measure portfolios for institutions all over the world. So they actually run the performance for us. So, it is a third party that generates that performance. So, Daniel, thank you very much for highlighting that.
DS: So, let’s jump into dividend grades though, because we have the dividend safety grade, the growth grade, consistency grade, and the yield grade, which I look at these quite often. But maybe we can jump over to, maybe a Symbol page and show where people can find those dividend grades on the Symbol page. We can also look at the back-test metrics from that, specifically, that product about how dividend safety grades can help you protect potentially any stocks that you have that might be cutting their dividend soon.
SC: Yeah. So, a great way to find like, if you’re interested in a dividend stock, I always suggest to people go to our stock screener. And when you go to the stock screener, you just click on that that’s on the left hand menu. You scroll all the way down. You’ll see find and compare, stock screener. And then right away in the very top, you could see Top Quant Dividend Stocks. So, this is our Strong Buy dividend stocks. We have some pretty strict criteria here. If I edit it and I opened it up, we could actually get a lot of other stocks as well, but what I want to do is, I just wanted, like, pick out one stock as an example that has dividends.
And as you scroll down on the right hand side, you’ll see dividend grades. So, if a stock doesn’t have dividends, you won’t see dividend grades. If it does have dividends, you will see the dividend grades, and we rate dividend safety, dividend growth, dividend yield, and dividend consistency. But as Daniel was talking about how it beats the market, you can actually take a little deeper dive and find out how this works. So, if you click on dividend grades, beat the market, this will give you a little bit of a history how we built out the model and some of the data that’s behind it. And it’s really impressive.
I mean, really, what we wanted to do is, we know at Seeking Alpha that a lot of our subscribers have stocks that pay dividends. They specifically look for stocks that pay dividends, but there are really no services out there that have dividend grades the way that we do. So, it’s really proprietary to Seeking Alpha. It’s a really unique feature. And when I created the system, really the sole purpose was to help people identify companies that had dividends and give them some assurance, not a guarantee, of course, but some assurance that their dividend would be safe.
So, when we developed the system, we looked at investment metrics and characteristics that are important to stocks that pay dividends. And we created a back-test, and I’m happy to show, in the back-test that we found, through our dividend safety grades that basically 98% of dividend cuts could have been averted by owning a stock with a dividend safety grade from A+ to B-. So, that is just like an incredible back-test, and I’m going to show you what those dividend metrics are. But, again, I just want to reiterate, basically, if you have a company that has a dividend safety grade between A+ and B-, historically 98% of the companies that had that, those dividend grades, you averted the cut.
Conversely, we found that 70% of all stocks that had a dividend safety grade of F actually cut their dividend. And we also found that 41% of all stocks that had a dividend safety grade of F at the January 2023 cut their dividend within the next 12 calendar months. So, these dividend grades are really important to look at. I will also say dividend growth grades are very important, and we found that if you combined companies that had a dividend growth grade of A+ along with a Quant Strong Buy that you significantly outperformed the benchmark over a long period. So, this gives you a little bit of in-depth assessment on what we did in terms of performing our back-test.
I want to take us back to the stock so we could actually look at the dividend grades. And, again, we’re very transparent at Seeking Alpha. So, when you scroll down to the right hand side, you look at dividend grades, you could see this company has an A-. So, that’s very safe. You could actually click on dividend safety, and then you could be and see why. Here’s the overall dividend safety grade. It’s an A-. And then when you look at all the metrics that we consider important for companies that have a dividend, we’re looking at cash dividend payout ratio. We’re looking at dividend payout ratio. We’re looking at cash flow payout ratio.
We’re looking at dividend coverage. We’re looking at interest coverage. We’re looking at debt-to-assets. We’re looking at debt-to-capital. We’re looking at net income margin, return on equity, cash per share. We’re looking at the percent of the security that’s owned by institutions. We’re looking at sustainable growth rates. So, dividend coverage ratio. So, we’re looking at a lot of different investment metrics when we assess dividend safety.
And, again, we take these metrics, and we compare them to all the other companies using the same metrics in the sector. So, by example, you could see here the cash dividend payout ratio, it’s an A-. So that gives you an instant characterization that on that particular metric, it’s much stronger than the rest of the sector. And you could see that it comes in at 15%. Lower is better here. The sector median is 40%, so that puts it at a 62% discount to the sector. So, you want a low cash dividend payout ratio.
If you’re looking at interest rate coverage, you’re looking at the opposite. You want a higher interest rate coverage number. This comes in at 48%. You could see it’s an A+ interest rate coverage for the sector at 6.75. So, it’s much higher than the sector. So, sometimes this could be a little confusing for people that don’t know if higher is lower or lower is better. We know what it is, and that gray there gives you that instant characterization of how it is to the sector. And it tells you, obviously, if it’s an A+.
Academically, if you’re getting an A+, an A, an A-, you’re doing well. Conversely, if you have something that’s in the D+ territory or the D territory, that is not comparing well to the sector. So, you do see here that the dividend growth rate, the one year CAGR, it’s only 1%. It’s lower than the rest of the sector, so that’s not that strong, but again, these metrics are not equally weighted. They’ve all been back-tested, we have an idea of which ones are more predictive, so those have a higher weight. So, that’s a little bit about the dividend safety grade.
Same goes for the dividend growth grade. We’re looking at different metrics here. So, you could see the one year dividend growth rate is in-line with the sector. The three year dividend growth rate, historically, not that great versus the sector, but the 10-year growth rate is actually really strong versus the sector. But other important factors are looking at revenue growth, looking at EPS growth, looking at free cash flow growth. So, again, we know which metrics are really important for dividend growth, and they have a higher weight. So, the overall grade ends up being an A-.
So, again, really the important thing being here, these have been back-tested, and I just want to reiterate that what we found is 98% of dividend cuts were averted by owning stocks that had a dividend safety grade between A+ and B-. So, how will you know this? You could load up your stocks into our portfolio tool. It will show you the Quant grades. It will show you the dividend grades, and you could see exactly how your stock looks or your entire portfolio looks, versus other stocks.
DS: Yeah. Well said. And, also, I want to reiterate is that every metric that is listed there obviously has its own weighting within the system here, and that is proprietary. So, we won’t be sharing that today.
SC: Right.
DS: Steve, I do want to mention or ask you this question because it did come up, and I saw it there on this last page actually with Newmont. Some of the metrics within the Quant system world here, whether it’s the factor grades or the dividend grades, are missing some values. Why does that happen on occasion?
SC: Yeah. So, I think let me see if there’s anything missing on Newmont.
DS: If you go back to the dividend safety, it was like, some of the five year metrics were missing, but there was another somebody here in the chat was pointing out another stock where some of the factor grades were missing some metrics.
SC: Yeah. That definitely happens. Typically, it could mean like, we’re looking at something, like, hypothetically, say we were looking at this company and the 10-year growth rate was blank, that means that the dividend data probably does not go back 10 years. If you’re looking at something, say, the growth page, for many stocks, if the company actually had negative earnings for one year and positive earnings for the next, that’ll actually not be meaningful. So, when we’re looking at a growth grade, the numbers have to be positive, and that’s how we would show growth rates. We need to see positive numbers there.
DS: Got you. Alright. Thanks for answering that one. Ken, real quick to answer your question, how do you get to the Quant portfolio tool? What Steve was just talking about was the Seeking Alpha Portfolio. So, over there on the left side, you can go and create a new portfolio. You can even link your brokerage account, but that is where you can find the Seeking Alpha Portfolio. Obviously, Steve has a million portfolios and counting.
SC: I am a portfolio junkie.
DS: You are. You are. Probably hitting the limit of wherever that is. Alright.
SC: I’ve definitely hit the limit a number of times. And I could show you quickly how some of that works. We’ll get ARK Innovations. I haven’t updated their stocks in a while, but by example, ARK is a well-known ETF that’s out there. So, I have the ability to look at the stocks in ARK. So, again, this has not been updated, but if it were updated and I wanted to, I could see what the ratings look like for the stocks in their portfolio. So, I could look at the – for each stock, what the valuation looks like versus the sector, what the growth looks like versus the sector, what profitability looks like for the sector.
I could also check out, let’s see, if they have dividends, which you’re not going to find with ARK really, in some portfolios, you would find that. I could look at an earnings page, and I could get a sense of what earnings look like for many of the companies and how have they done in their last quarter. So, we could see if they’ve hit or miss, and it looks like a number of the companies that I had here historically, they surprised to the upside, which is pretty good for ARK.
So, if I want to look at the growth, I could look at each of the individual stocks in the portfolio, and this could be your own portfolio as well where you’ve loaded up your names, and you could see what year-over-year revenue growth is for a company, what forward revenue growth is, what the five year revenue growth is, what the EBITDA growth rate is. If you wanted to look at the value, you could click on that, and you could look at each stock that you have in your portfolio. You could look at the individual P/E or PEG or price-to-sales or EV-to-sales.
So, the portfolio tool is a wonderful tool. And, again, we have the screener as well. If you’re looking for ideas, you would just go down to the screener, and you click on screener. You could create your own screen or, like, the pre-baked screens that we have. So, here are stocks by Quant.
DS: And, Steve, you’re going to dive deeper into all this screener stuff here, like I said, with the webinar with Fred here at the end of the month. I was hoping we could keep going here. Maybe jump over to a REIT, one that I was thinking about earlier, obviously, you don’t have to, but Simon Property Group is one that I’ve been following for a while here. Pretty much one of the big names, obviously, SPG there.
Let’s go ahead and dive in because we have different grades here for the factor grade or the metrics that go into the factor grades, I should say. Maybe you could quickly walk people through this as well.
SC: We do. Yeah. Most of the other GICS sectors, we use the same metrics that we assess. We have found historically it’s worked pretty well, but REITs are a very different sector, like comparing horses to zebras. So, we have to look at different metrics. So, if I click on, by example, growth, you will see that we’re looking at AFFO growth. We’re looking at CapEx growth. We’re looking – we do have, like, some of the conventional metrics. We are still looking at EPS growth. We’re looking at FFO growth for this as well.
So, in the world of REITs, when people are looking at fund flows, that is very important, compared to the world of stocks where you’re typically looking at EPS. So, we have some of the conventional metrics, but we also have the metrics that are very centric to REITs. If I looked at valuation, we show conventional metrics such as P/E, but we’re also showing the metrics that are centric to REITs such as price-over-AFFO or price-over-FFO. And other metrics that are important to REITs as well, total debt-to-equity, total debt-to-capital.
So, number of different metrics that we find are important to REITs, those would be the metrics that we’d look at. We’re looking at profitability. You could see there’s the AFFO payout ratio. We also have the FFO payout ratio. We’re looking at cash per share as well, which is common to what we look at stocks, but we’re also looking at the FFO dividend coverage ratio, FFO gross-to-margin, FFO interest rate coverage.
So, many different metrics that we use for REITs, and we have a good track record for that as well. See if we could bring that up. REIT, Quant ratings beat the market. So, as we click on this, you could see our back-test show and really our simulated performance. Honestly, we’ve been running the REITs since about January of 2019, so these aren’t even back-test. These are actually the simulated trades that you’re looking at. And you could see that our REIT Quant Strong Buys are up a 175% versus the XLRE ETF for the same period up only 76%. So, Quant works quite well for REITs as well.
DS: Alright. Now there are a ton of questions here. So, obviously, REIT grades, stock metrics, ETFs, we have all this data coming in. There was a question. Are we sourcing the data ourselves, or do we have data providers, or how does our data stream work?
SC: So we have data providers. We have a number of different data providers, based on what we’re looking at. Our data provider for most of our stocks would be S&P Global, but for prices and quotes, we use Xignite’s. For our ETFs, we use LSEG, which is London Stock Exchange. So, we do have probably about 30 different data vendors. So, we are not sourcing the data ourselves, but what we do is we create the algorithms. And when we create the algorithms, basically the metrics that we use and the formulas that we use are proprietary to Seeking Alpha. So lots of different companies provide data. It’s how you use that data, and it’s some of, really the mathematical models that we use that make the difference.
DS: Well said. Well said. Alright. Let’s jump back over into some stocks here. Maybe we can jump over to Celestica or whoever. You pick a random stock page, but there was a question that comes in. Why is the Quant system grade and the Seeking Alpha Analysts grade not always the same?
SC: Yeah. So, it’s, let’s go to one of the stocks that we’ll pull up. Yeah. I just wrote an article recently Buy The Dip. So, obviously, the market had dipped. Best 5 Tech Stocks With An Average Forward EPS Growth Of 197%. I would definitely encourage people to take a look at these stocks because they did come down with the market, and they’re probably all rocketing today. One of the stocks that I’ll pull up is Credo, so we could take a look at that. And, again, when you pull up one of my articles, please click follow, and you’ll get all my articles, but I’m going to type in Credo.
DS: Yeah. That’s like the cheat code right there. You guys put out … all the time.
SC: Yes. So, Credo up 3.2% today. So, in the last five days, the stock is up 5%. So, the timing of that article was, yeah, quite good. So, Daniel, you wanted me to pull this up? What did you want me to highlight?
DS: Yeah. We’re just talking about so for example, here on this page, Quant system is a Strong Buy rating, but the Seeking Alpha Analysts in aggregate have a Buy rating on this stock. So, they’re not the same, so we just need to clarify that even though they’re both from Seeking Alpha, there’s a difference here.
SC: Absolutely. Like, so Seeking Alpha has a number of contributors, and that SA Analysts grade reflects all the contributors that have written about the stock and what the consensus rating is. And you can actually click on that. Click on SA Analysts, and it will show you the breakdown. So, there are 11 contributors that cover the stock. So, 11 different individuals have written articles on Credo. Three of them have a Strong Buy. 7 have a rating of a Buy. One has a Hold on it. If you take the consensus of that, that would be a Buy recommendation.
If you click on Wall Street, so another independent source, you could see that there are 16 analysts on Wall Street that cover the stock. And in the last 90 days, 11 of those analysts have had a Strong Buy, 4 have had a Buy, and one has a Hold. So, the consensus of Wall Street Analysts is a Strong Buy. And the Quant is our system, and when you click on Quant, that will show you where the factor grades are, where the current rating is, but again, we’re really transparent, so we have a long history. You could see where the ratings were going back three years every single trading day.
DS: Alright. Now, this is actually a great point as well because a lot of Wall Street analysts like to produce price targets when they put out their research. And this question comes up all the time. Does the Seeking Alpha Quant system have a price target, or how does somebody know when to get out of the stock?
SC: You know to get out of the stock when the Quant Rating goes to Sell or a Strong Sell. We don’t really believe in price targets because having been an analyst myself and working on Wall Street, all the analysts will have price targets, but we do that to develop interest in stocks. So, we could show that, okay, this price target is 50% above the current price. You should be looking at it. But what we really find is, whenever a company hits its price target or if something goes wrong in unison analysts are changing their targets all the time.
When we look at a stock from a Quant perspective, we’re not looking at a price target. We compare the company to other companies in the sector. And when we look at growth and valuation and the profitability framework, that is what tells us how these stocks look in terms of their strength or weakness, compared to the sector median. That’s what helps us determine if a company is mispriced.
So, we have a Strong Buy in a stock. Our data is showing us that the stock is not priced correctly, and compared to the sector, it should be higher. So, when we’re looking at the valuation grade and the growth grade and we put this all together in the profitability grade, that will tell us if it’s a Strong Buy, Buy, or Hold. And if it’s a Strong Buy, it means that the growth in this instance is far higher than the sector, and the valuation is fairly attractive. So, when you combine it, really, like, again, you look at that PEG ratio, you could see it’s an A+ when you’re looking at value and growth together.
And that’s part of really what our Quant system does is, it’s taking these different investment characteristics and pulling it together and identifying what’s collectively strong. That’s how we decide if a stock is a Buy or not. We don’t use an artificial price target because the price targets change all the time.
DS: Alright. So, what about the weights of these metrics? Do those change over time?
SC: The weights have not changed since we’ve created a model. They’ve actually have continued to be very good predictors. As I mentioned earlier, not all the weights in stock created equal. Metrics are not created equal. Some are more predictive, and, obviously, you could probably see here the PEG ratio would have a higher weight than some of the other metrics that we have here because this is a more of a predictive factor. And we could see, obviously, that the stock has done quite well.
So, if we go back over a year, the stock is up 215%. So, it’s done very well over the year. And if we went back five years, you could see the stock has been incredible. It really started to take off back in 2024, though. So, really looking at a year, I’ll just put it in context of how the stock has performed. And as I mentioned, it was in that article Buy The Dip. The stock is definitely off its high, which was around December 2025. It was a $189, so it’s fallen significantly from its high. And based on the company’s growth being so superior to the rest of the sector, that’s why we feel strongly that our Quant recommendation of Strong Buy is correct, and individuals should be buying it.
So, we’ve had a good five days. The stock is up 1%. Probably over the course of the month, there was a lot of uncertainty. So, the stock up a little bit, but this is really a good period to be looking at stocks as geopolitical events seem to be calming down based on this two week treaty. We don’t know if it’s going to stick or not, but certainly we can tell many of the stocks that have Quant Strong Buys are doing well. And we have portfolios that we run. I mentioned that earlier.
We have Alpha Picks and we have the PRO Quant Portfolio. And I will just show you Alpha Picks since inception, which was about 3.5 years ago. That’s up 293% versus the S&P up 74%. But even in this volatile year where the S&P is down 3.34%, Alpha Picks is up 7.59%. You could see a couple of stocks here that were in the portfolio. We’ve had some stocks have done really, really amazing.
What Alpha Picks is, it’s basically, we do some of the work for you. Every month, we send you our Top 2 Quant picks. So, on the trading date closest to the 1st of the month and the 15th of the month, you will receive an email, or you could look at the platform and see the analysis. And we release what the stock pick is. And as you could see, the performance has done quite well since the very beginning. Again, that’s two ideas a month. We actually did a survey asking our Alpha Picks customers what we could do better, and they said more ideas.
So, then we created the PRO Quant Portfolio. And here, we’re showing off a couple of the ideas too. This actually just started last June. And since last June, you could see it’s up 29% versus the S&P on an equal weighted basis because this is an equal weighted portfolio. The S&P only up 10% for that period. And even looking year-to-date, it’s up 3.58%, compared to the S&P on an equal weighted basis up 1.31%. S&P on a market cap weighted basis, obviously, down about 3% as of yesterday’s closings. Today, these will be a lot higher on both sides. So, whether you’re looking at all our Quant Strong Buys or these portfolio products that we’re creating, the Quant does work really well.
DS: Steve, I know we’re coming up at the top of hour. I’m going to start rapidly going through some of these questions as much as we can.
SC: Yeah. Please do.
DS: You had mentioned geopolitical risk that’s going on in the market right now. Does the Quant system incorporate that geopolitical risk? Does it bring in news? Does it bring in technical analysis?
SC: So, as I mentioned, the model is both historical looking and forward looking. So, we’re looking at valuation levels and growth rates from the past, but we also look at Wall Street consensus for revenue growth and for earnings growth and EBITDA growth. If a geopolitical event or any regulatory event, any type of macro event, if it’s going to have an impact on the industry, many times analysts will change their numbers. We have what we call the revisions grade. So, indirectly, we bring those analyst revisions into our model.
So, when I click on the revisions grade here, you could see, for Celestica, obviously, despite all the geopolitical events that are happening, analysts think this company is going to continue to do better than they expected, so they’re revising their numbers up. If a geopolitical event, say, maybe on a company that was very interest rate sensitive or maybe in the energy sector, if analysts thought the numbers would be going up or down, they would move their estimates, and we would capture it with a revision grade.
DS: So, talking about the revisions grade, there was a question of, is there a minimum number of analysts that need to be covering a stock for that grade to be calculated, or is it…
SC: Yes.
DS: …just minimum of one? Or, okay. What is it?
SC: One is it. We just need one analyst to be covering it. Yeah.
DS: Awesome. Alright. Continuing going on here. So, there was a couple of questions asking about there’s a few grades, or sorry, there’s a few stocks across our site where it seems like the Quant Rating grade changes multiple times either a week or a month. What would cause such high fluctuation in the grade to whipsaw back and forth?
SC: Yeah. Stocks trade thousands and thousands of times a day, from the time that the market opens. And even in pre-market or post-market, stocks are trading as well, let alone during the day. So, the Quant system is measuring basically every single trade in essence because we’re looking at the price, and then at the end of the day, we take a closing price, and we factor that closing price into many metrics.
So, by a good example, if we look at valuation. Okay? And often, it’s a valuation or EPS revisions that can be responsible for the stock’s overall directional recommendation. So, I believe what this subscriber individual was talking about was a Quant grade going maybe from a Strong Buy to Buy to Hold of this valuation grade. And remember, it’s not just on an absolute basis. We’re comparing it to the rest of the sector.
So, the movement of the stock, the movement of the sector in conjunction with each other with all the trades that are occurring are, in essence, it’s almost like a real time system. And if a stock begins to get overvalued versus a sector, and often we’ll find, like, if a stock goes for – a stock could be a Strong Buy and have a value grade of a D, but if it becomes a D-, that’s a circuit breaker. And when that circuit breaker is hit, it will drop the rating down from a Strong Buy to a Hold because a D- is just too low for valuation grade. And then a couple days later, the valuation could look a little bit different, so it may go back up.
So, it all depends how the stocks are trading and how they’re trading versus the sector. And stocks trade, as I said, thousands of times a day. And when you measure it against all the trades for the sector, you’re looking at millions and millions of trades. And our Quant system measures all of it.
DS: Yeah. And we update it every single day. Right?
SC: Every single day.
DS: Somebody asked about the specific time. It’s 4:00 to 6:00 AM, I think, is what we’ve usually said. Is that right?
SC: That’s right. From 4:00 to 6:00. And I know for some people that could be frustrating because they might use to, they’ll look at an analyst report that was written maybe, like, a week or two weeks ago, and the analyst has a Strong Buy on it. And they’re like, it’s a good valuation. But the truth of the matter is, looking at something, like, two weeks ago, that’s looking at, like, a newspaper article from two weeks ago. Do you really want to make your investment decision based on data that’s two weeks old? For me, that doesn’t work, and that’s part of why I created the Quant system. I want to look, and I want to make investment decisions based on the data that’s here right now in the moment.
DS: Yeah. Exactly. Somebody did ask, do we also refresh these on the weekends, or is it only on trading days?
SC: Well, it reflects all the trading days. So, on Saturday, it would update for Friday.
DS: Alright. Great. But no updates on Sunday, to clarify?
SC: No updates on Sunday. No.
DS: Great. And just to clarify as well, everybody, that is Eastern time zone when I was talking about 4:00 to 6:00 AM. Just so you’re aware. There was a question. Are stock buybacks factored into the Quant model at all for these companies?
SC: I like stock buybacks. So, there are a number of metrics that we look at, and that could be one of the metrics that we look at. We don’t show all the metrics that we look at.
DS: Oh, I see what you’re saying…
SC: I’m actually glad that question came up, because if you’re looking at the valuation page here or you’re looking at the growth page here or the profitability page here, we give you a really close idea of how many metrics are out there for each of these investment characteristics, but there are a couple proprietary metrics that we don’t show, and that’s because we don’t want our competitors to see it. So, what you look at gives you a really close intuitive idea. But I will say, Daniel, on occasion, sometimes it doesn’t seem intuitive because it looks like something’s a little bit off. And if it looks like it’s a little bit off, it could be that it’s one of the metrics that we don’t display.
DS: Got it. Alright. I see what you’re putting down there. Michael’s been asking throughout the webinar, do we cover Canadian stocks with the Quant system?
SC: We have ADRs that we cover. And, yeah, I believe we do have some Canadian stocks as well. Did Michael give you an example of one Canadian stock?
DS: He did not.
SC: Okay.
DS: But maybe he’ll chime in, in the chat here in a second. But…
SC: I see Royal Bank, I know, like, Royal Bank of Canada. They have an ADR. So…
DS: Shopify account?
SC: Yeah. So, that like, yeah, most of the ADRs will show up.
DS: ATD. Why don’t you go ahead click that one in?
SC: ATD?
DS: Yeah.
SC: Alright. This is what I see for A as in Alpha, T as in Tomahawk, D as in Delta.
DS: Doesn’t look like we get that one. Or Mark says…
SC: Oh, yeah. We do. See, ATD, just came up. So, if we click on that and we go to the summary page, you could see that we have the stock, but it doesn’t have coverage from the Quant system. And it didn’t look like there was an ADR in this company. So, there is information that you can get. So, what I do want to say is, if you click on, like, the growth tab here, okay, it will show you the absolute data points, but it’s not going to show you those academic letter grades that you have with the Quant system because we’re not comparing it to the rest of the sector.
So, we do have data for Canadian stocks, but it would be absolute data. If there is an ADR, you would have the Quant system in place. If there’s no ADR for the Canadian stock, you would just have the raw data. So, we show the valuation. So, a lot of the metrics we look at are there, and you’re just going to look at the absolute metric. You’re not going to have the Quant grade.
DS: Alright. Got that clarified. Alright. Let’s try to squeeze in one or two more here. Do we use any discount cash flow models within the Quant system?
SC: We do not. It’s something that, historically, I have found ineffective, so we do not include that in our model. I know a lot of analysts do like to use it, but I think even in this article, I may address that. We do. We say, how is the value grade determined? Discounted cash flow models are highly sensitive to the company’s assumed long-term growth rate. We don’t know what the long-term growth rate is. So, it’s one of the reasons why we don’t use it. A small change in the company’s assumed long-term growth rate can have a large impact on the resulting fair value for the stock.
Long-term growth rates are extremely hard to estimate with precision, and analysts have few tools other than guesswork for estimating them. So, that is one of the reasons that we do not use DCF. Amazing that he asked it, and, yeah, the answer is right there.
DS: Love it. Love it. How many years are included in forward metrics that we have across the grades?
SC: Alright. Let’s go there. We’re going to show you this. So, we’ll go to Credo Technology. This is how transparent our system is. If we go to, let’s say, well, let’s just go to revenue forward growth. You could see, we actually have a tool tip, which displays the information how that metric works. And you could see for our forward growth rate, we’re actually using one historical year and going forward two more years. So, it’d be one historical year. So, you have an actual in there. Then you have the current year, then you have FY1 and FY2. So, that’s a total of four different periods that we use, and you would find the same for the EBITDA forward growth rate and for the EPS forward growth rate.
So, our growth rate, that calculation that we’re using, it’s a bit proprietary to Seeking Alpha, and it’s one of the things that separates us. And as I have mentioned, I’ve been doing this for a long time. We’ve back-tested a lot of these metrics. So, I tend to find that using a longer growth rate period with including one historical year is actually a much more effective tool for measurement.
DS: Alright. There you have it. Alright, Steven Cress. Thank you so much for the time and the knowledge here today.
SC: Absolutely.
DS: This has been extremely helpful. Diving into the world of Quant. I know we’ve gotten a lot of questions from people over the many months and years, and we needed to re-dive in with everybody. And if you’re watching the replay of this video, if you’re new to Seeking Alpha Premium or PRO or you’re joining in for Alpha Picks, hopefully, you found a lot of great insights here as well. I know it can seem a little bit intimidating at times, but I promise you it’s not.
And, also, like I said, there’s going to be another webinar with Steve here at the end of this month. There’ll be another video on the replay at the Video Hub here on Seeking Alpha that’ll dive into more of portfolio health check screeners and some of the other Quant features here. But Steve is, like I say, the mastermind, the Titan of Quant here at Seeking Alpha. It’s always a pleasure to dive into this information with you. So, I know everybody’s here saying, great. Thank you so much, Steve. Somebody’s asking your age. I thought that’s not what we do here guys.
SC: I’ve been in the business for a long time.
DS: We’re here for the education.
SC: A lot of experience. A lot of experience.
DS: That’s right. That’s where all the hair went. Right? Alright, Steve. Let’s hop on out of here. Everyone, thank you so much for joining us today. This has been very great, and we’ll see you here again soon in the next video. Take care.
SC: Thanks so much. Bye-bye.
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