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Sabrient Quantitative Investment Research

Financial Advisors & Investment Professionals

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News & Announcements - 2018                                         USER GUIDE

1-18-19:  Baker's Dozen Model Portfolio for January 2019 Has Launched
Sabrient Baker's Dozen Model Portfolio for January 2019 was launched on January 18, 2019. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 13 months. The portfolio will terminate on January 20, 2020. To follow the performance of this and earlier Baker's Dozen portfolios, please visit Sabrient Baker's Dozen website.

1-17-19:  Earnings Busters Alerts for Friday, January 18, 2019
    BUY:  Alaska Air Group, Inc. (ALK)
    SELL:  PulteGroup, Inc. (PHM)
Details are in the Earnings Busters newsletter.

1-16-19:   New Sabrient Dividend UIT Launched
The 26th Sabrient Dividend UIT Portfolio (Ticker: FEVMDX) was launched by First Trust Portfolios on January 16, 2019. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The portfolio will terminate on January 15, 2021. For more information, a prospectus, or a fact sheet, please First Trust Portfolios.

1-16-19: 4th Dividend Opportunity UIT Launched
The fourth portfolio in the Sabrient Dividend Opportunity UIT Series (Ticker: FOEAMX) was launched by First Trust Portfolios on January 16, 2019. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The primary difference between the Dividend Opportunity portfolio and the other Sabrient Dividend portfolios, is the length of term. The Dividend portfolios have a 2-year term, while the Dividend Opportunity Portfolio has a 15-month term. This Dividend Opportunity portfolio will terminate on April 16, 2020. For more information, a prospectus, or a fact sheet, please visit First Trust Portfolios.

1-15-19:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

1-9-19:  Sector Detector: Investors enter New Year with combination of apprehension and optimism
by Scott Martindale
President, Sabrient Systems

After an "investor's paradise" year in 2017 -- buoyed by ultra-low levels of volatility, inflation, and interest rates, and fueled even more by the promise of fiscal stimulus (which came to fruition by year end) -- 2018 was quite different. First, it endured a long overdue correction in February that reminded investors that volatility is not dead, and the market wasn't quite the same thereafter, as investors' attention focused on escalating trade wars and central bank monetary tightening, leading to a defensive risk-off rotation mid-year and ultimately to new lows, a "technical bear market" (in the Nasdaq and Russell 2000), and the worst year for stocks since the 2008 financial crisis. Then, it was confronted with the Brexit negotiations falling apart, Italy on the verge of public debt default, violent "yellow vest" protests in France, key economies like China and Germany reporting contractionary economic data, and bellwether companies like FedEx (FDX) and Apple (AAPL) giving gloomy sales forecasts that reflect poorly on the state of the global economy. The list of obstacles seems endless.

Moreover, US stocks weren't the only asset class to take a beating last year. International equities fared even worse. Bonds, oil and commodities, most systematic strategies, and even cryptocurrencies all took a hit. A perfect scenario for gold to flourish, right? Wrong, gold did poorly, too. There was simply nowhere to hide. Deutsche Bank noted that 93% of global financial markets had negative returns in 2018, the worst such performance in the 117-year history of its data set. It was a bad year for market beta, as diversification didn't offer any help. Read more at Scott Martindale's blog

1-8-19:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

1-3-19:  Earnings Busters Alerts for Friday, January 4, 2019
    BUY (RENEW):  Commercial Metals Company (CMC)
Details are in the Earnings Busters newsletter.

12-26-18: New Small Cap Growth UIT Launched
The 21st Sabrient Small Cap Growth UIT (FWRYZX) was launched by First Trust Portfolios on December 21, 2018. The portfolio invests in top-ranked (at the time of their selection) small-cap stocks that represent a cross-section of industries that Sabrient believes are positioned to perform well in the coming year. The stocks are GARP stocks -- stocks that represent "growth at a reasonable price" -- and they are meant to be held for the full term of the trust, which terminates March 23, 2020. For a prospectus or fact sheet, please visit https://www.ftportfolios.com/Retail/dp/dpsummary.aspx?fundid=13894 FirstTrustPortfolios.com.


12-20-18:  Earnings Busters Alerts for Friday, December 21, 2018
    BUY:  Boyd Gaming Corporation (BYD)
    SELL:  Chevron Corporation (CVX)
Details are in the Earnings Busters newsletter.

12-20-18:  Baker's Dozen Model Portfolio for December 2018 Has Launched
The December 2018 Sabrient Baker's Dozen Model Portfolio was launched on December 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on December 23, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.

12-18-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

12-10-18:  Sector Detector: No holiday cheer yet as panic mode does major technical damage, despite attractive valuations
by Scott Martindale
President, Sabrient Systems

Last week was the market's worst since March. After Q3 had zero trading days with more than 1% move (up or down), our cup runeth over in Q4 with the stock rollercoaster so far offering up 22 days that saw a 1% move. Volatility seems rampant, but the CBOE Volatility Index (VIX) has not even eclipsed the 30 level during Q4 (whereas it hit 50 back in February). Even after Friday's miserable day, the VIX closed at 23.23. Of course, the turbulence has been driven primarily by two big uncertainties: the trade dispute with China and the Federal Reserve's interest rate policy, both of which have the potential to create substantial impacts on the global economy. As a result, investor psychology and the technical picture have negatively diverged from a still solid fundamental outlook.

For about a minute there, it seemed that both situations had been somewhat diffused, with Presidents Trump and Xi agreeing at the G20 summit to a temporary truce on further escalation in tariffs, while Fed chairman Powell made some comments about the fed funds rate being "just below" the elusive neutral rate. But investors' cheers soon switched back to fears (soon to be tears?) with the latest round of news headlines (e.g., Huawei CFO arrest, Trump's "Tariff Man" comment, Mueller indictments, and the imminent federal debt ceiling showdown). The uncertainty and fear-mongering led to a buyers' strike that emboldened the short sellers, which in turn triggered forced selling in passive ETFs and automated liquidation in quant hedge funds, high-frequency trading (HFT) accounts, and leveraged institutional portfolios, which removed liquidity from the system (i.e., no bids), culminating in a retail investor panic. As it stands today, the charts look woefully weak and investor psychology has turned bearish, with selling into rallies rather than buying of dips. Read more at Scott Martindale's blog

12-6-18:  Earnings Busters Alerts for Friday, December 7, 2018
    BUY:  KEMET Corporation (KEM)
    SELL:  Terex Corporation (TEX)
Details are in the Earnings Busters newsletter.

12-4-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

12-3-18:  New Defensive Equity Portfolio Launched
A new Sabrient Defensive Equity UIT (FIZLJX), 18th in the series, was launched by First Trust Portfolios on November 29, 2018. This UIT seeks to find companies that are positioned to perform well in environments of falling stock prices but also those companies that have the potential to provide solid performance in rising markets. The stocks in the portfolio are selected through an investment strategy process developed by Sabrient. The portfolio will terminate on March 2, 2020. For a fact sheet or prospectus, please visit FirstTrustPortfolios.com. 11-20-18:  Baker's Dozen Model Portfolio for November 2018 Has Launched
The November 2018 Sabrient Baker's Dozen Model Portfolio was launched on November 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on November 21, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.

11-19-18:  New Rising Rate Portfolio Launched
A new Sabrient Rising Rate Portfolio (FTAGOX)) -- 10th in the series -- was launched by First Trust Portfolios on November 16, 2018. Historically, certain stocks have outperformed the market in periods during which longer-term Treasury bonds have rising yields, and Sabrient believes 10-year and longer Treasury yields are likely to rise over the next several years. The Sabrient Rising Rate Portfolio is a unit investment trust that seeks to find companies that Sabrient believes are positioned to perform well in environments of rising Treasury yields. The portfolio will terminate on November 16, 2020. For a fact sheet or prospectus, please visit FirstTrustPortfolios.com.

11-13-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

11-08-18:  Earnings Busters Alerts for Friday, November 9, 2018
    BUY:  The Mosaic Company (MOS)
    SELL:  Nexstar Media Group, Inc. (NXST)
Details are in the Earnings Busters newsletter.

11-6-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

11-5-18:  Sector Detector: October washout serves up compelling buying opportunity at lower forward valuations
by Scott Martindale
President, Sabrient Systems

The escalating trade standoff with China, an increasingly hawkish Federal Reserve, and the impending mid-term elections finally took a toll on investor psyche, creating a rush to the exits in October as concern rises about the sustainability of the ultra-strong corporate earnings given China's key role in global supply chains. Even some sell-side analysts have seen fit to slightly trim Q4's strong earnings estimates. Nonetheless, the month ended with an encouraging rally from deeply oversold technical conditions. Overall, Sabrient's model continues to suggest that little has changed with the positive fundamental outlook characterized by solid global economic growth, strong US corporate earnings, modest inflation, low real interest rates (despite incremental rate hikes), a stable global banking system, and historic fiscal stimulus in the US (especially corporate tax cuts and deregulation) that is only starting to have an impact on all-important capital spending. Also worth mentioning are the Consumer Confidence Index, which rose to its highest level in 18 years, and the Small Business Optimism Index, which continues with the longest streak of sustained optimism in its 45-year history.

Although the S&P 500 managed to plod its way upward during the summer and hit new highs well into September, a dramatic risk-off defensive rotation commenced in mid-June reflecting cautious investor sentiment, which disproportionately impacted Sabrient's cyclicals-heavy portfolios. But this was not a healthy rotation. In fact, I wrote during the summer that the market wouldn't be able to move much higher without renewed breadth and leadership from cyclicals. But instead of a risk-on rotation to recharge bullish conviction, we got a big market sell-off in October. Notably, such a pullback is normal in mid-term election years, but what is also normal is a strongly positive market move over the course of the 12 months following the mid-terms.

Last week's fledgling recovery rally from severely oversold technical conditions showed promising risk-on action -- and some relative performance catch-up in Sabrient's portfolios. Thus, while the aggregate earnings outlooks for companies in the cyclical sectors and smaller caps have held steady or in many cases improved, shares prices have fallen dramatically, making the forward P/Es in these market segments much more attractive, while forward P/Es in the defensive sectors have become quite pricey. Read more at Scott Martindale's blog

10-31-18:  New accounting standard on leases: Potential impacts on earnings quality and management behavior
by Bradley Cipriano, CPA
Equity Analyst, Gradient Analytics LLC (a Sabrient Systems company)

At Gradient Analytics, our forensic accounting analysis includes assessing the quality of a company's reported earnings and the strength of its balance sheet. A key element of this process is understanding whether recently reported growth is sustainable and whether forward expectations are reasonable. New GAAP (Generally Accepted Accounting Principles) standards -- such as Contracts with Customers (ASC 606), which went into effect at the beginning of this year -- have distorted year-over-year growth figures, such that it has become routinely necessary for an investor/analyst to adjust income statement and balance sheet accounts to get a clearer like-for-like comparison. For example, ARRIS International plc (ARRS) has grown 2018 YTD GAAP EPS by $0.17, which includes an $0.18 benefit from ASC 606. So, while ARRS is showing earnings growth on the surface, its comparable YOY earnings have actually declined. Understanding how new accounting standards can be manipulated to positively impact earnings can help investors better assess reported results.

While such new standards are often viewed as "a wash" since there is no change to the underlying economics of a business, the changes under the new leasing standard Leases (ASC 842), which is coming into effect in 2019, may prove quite material for certain corporate filers. The new leasing standard follows a convergence in accounting principles between International Financial Reporting Standards (IFRS) and U.S. GAAP to improve comparability among different filers. Currently, operating leases (which are similar to debt) are disclosed off-balance sheet in the footnotes with limited qualitative or quantitative disclosures. But following the adoption of the leasing standard, this debt must be brought back onto the financial statements along with increased disclosure requirements. It is important to question why a company has relied on off-balance sheet debt in the past to better understand the risks that may surface once this debt is brought back onto the statements.

In this article, I explain ASC 842, summarize the major changes it introduces and its expected impact on corporate financial statements, and discuss how this new leasing standard allows for management subjectivity that might be used to distort earnings growth and disguise a firm's sustainable operating performance. Read on . . .

10-30-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

10-25-18:  Earnings Busters Alerts for Friday, October 26, 2018
    BUY:  AAR Corporation (AIR)
    SELL:  Extreme Networks, Inc. (EXTR)
Details are in the Earnings Busters newsletter.

10-23-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

10-23-18:  New Sabrient Dividend UIT Has Launched
The 25th Sabrient Dividend UIT Portfolio (Ticker: FQLKEX) was launched by First Trust Portfolios on October 22, 2018. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The portfolio will terminate on October 22, 2020. For more information, a prospectus, or a fact sheet, please visit First Trust Portfolios.

10-23-18:  Third Dividend Opportunity UIT Launched
The third portfolio in the Sabrient Dividend Opportunity UIT Series (Ticker: FTYDLX) was launched by First Trust Portfolios on October 22, 2018. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The primary difference between the Dividend Opportunity portfolio and the other Sabrient Dividend portfolios, is the length of term. The Dividend Opportunity Portfolio has a 15-month term, while the Dividend portfolios have a 2-year term. This Dividend Opportunity portfolio will terminate on January 22, 2020. For more information, a prospectus, or a fact sheet, please visit FirstTrustPortfolios.com.

10-19-18:  Baker's Dozen Model Portfolio for October 2018 Has Launched
The October 2018 Sabrient Baker's Dozen Model Portfolio was launched on October 19, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on October 21, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.

10-17-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.

10-15-18:  Sector Detector: China and the Fed inject new fear into a cautious market
by Scott Martindale
President, Sabrient Systems

Volatility suddenly returned with a vengeance last week -- to both stocks and bonds. In fact, on Wednesday, while the -3.1% single-day selloff in the S&P 500 didn't quite equal the -4.1% fall on February 3, the normal "flight to safety" into US Treasuries when stocks sell off didn't occur, which was quite distressing to market participants and pundits alike. But on Thursday, bonds caught a bid while equities continued their fall. Suddenly, talk has become more serious about the potential for slower global growth due to rising interest rates and escalating trade wars.

But has anything really changed from a fundamental standpoint? I would say, absolutely not. Although the risk-off rotation since June 11 continues to hold back Sabrient's cyclicals-oriented portfolios, our quantitative model still suggests that little has changed with the fundamentally strong outlook characterized by global economic growth, impressive US corporate earnings, modest inflation, low real interest rates, a stable global banking system, and historic fiscal stimulus in the US (including both tax relief and deregulation). Moreover, it appears to me that equities are severely oversold, and now is a good time to be accumulating high-quality stocks with attractive forward valuations from the cyclical sectors and small caps.

When a similar correction happened in February, the main culprits were inflation worries and hawkish rhetoric from the Federal Reserve regarding interest rates. After all, the so-called "Fed Put" has long supported the stock market. But then the Fed commentary became less hawkish and more data-driven, which was helpful given modest inflation data, but the start of the trade war rhetoric kept the market from bouncing back with as much gusto as it had been displaying.

So, what caused the correction this time? Well, to an extent, bipartisan support for heightened regulation and consumer privacy protections hit some of the mega-cap InfoTech stocks that had been leading the market. But in my view, the sudden spikes in fear (and the VIX) and in Treasury yields and the resulting rush to the exit in stocks was due to a combination of the Federal Reserve chairman's suddenly hawkish rhetoric about interest rates and China's extreme measures to offset damage from its trade war with the US. Read more at Scott Martindale's blog

10-11-18:  Earnings Busters Alerts for Friday, October 12, 2018
    BUY:  HollyFrontier Corporation (HFC)
    REPLACE:  Andeavor (ANDV)
Details are in the Earnings Busters newsletter.

10-9-18:  Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.



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