A Quick “Alpha Score” Teaser Answer

By Travis Johnson, Stock Gumshoe, January 27, 2015

I’ve had several folks writing in about the “Alpha Score” that the Profitable Trading folks are selling in a service called Alpha Trader. This is a technicals-driven service, and I’m no market technician or chart-expert, but they also did tease a specific stock that they say is hitting a good “Alpha Score” … so that, at least, we ought to be able to find for you on this snowy day in New England.

The “Alpha Score” itself seems to be some combination of relative strength and price/cash flow or free cash flow — combining a technical/momentum indicator with one of the better fundamental indicators (cash flow is much harder to fudge than earnings). I don’t know what the numbers mean that they pitch around, but it’s some sort of score, a percentile or ranking, assigned by these numbers (with each having a possible score of 0-100, so a max “Alpha Score” of 200).

I don’t know exactly what it means, and I do very little thinking or reading about technical trading or quants, but the person that Profitable Trading hired to add this “Alpha Score” magic to their service appears to be Tom Vician, who does have his own website here and a blog here with some basic info on his strategies and ideas.

But what is the specific stock hinted at in the teaser ad today? Here are our clues:

“… the Alpha Score just alerted me to a new small-cap leader you’ve probably never heard of. This company doesn’t do anything flashy. In fact, most would call its business boring. It makes thermal and acoustical barriers for car engines and insulating and filtration products.

“Like I said, boring. What is exciting is the firm’s profitability.

“This company prints money hand over fist, as evidenced by the earnings and revenue growth of the past four quarters.

[They show a graph of earnings and revenue growth this past year, all strong — including 59% earnings growth on 37% revenue growth in the third quarter of 2014]

“Its Alpha Score of 166 places it in the strongest 6% of all companies based on this proprietary indicator. These are the kinds of market-leading stocks the Alpha Score helps find before everyone else catches on.

“With the small-cap sector showing renewed signs of life, now is the time to position your portfolio in leading stocks. A rising tide lifts the strongest boats the quickest.”

So who is this? Lydall (LDL)

And no, I don’t know why it has a high “Alpha Score” — but it is in that “boring” business they teased, and it has sales and earnings growth that exactly match the teaser pitch. It has been falling a bit this year, and cash flow and earnings have both generally been improving in recent years (though 2013 was not a great year, 2014 was very good). They’re small (market cap near $500 milion), they trade at a forward PE of about 15 (though that’s from only two analysts), and they’ve beaten estimates in each of the past four quarters.

With that, I’m off to shovel some white stuff — let us know if you think Lydall is interesting (or not), or if you have any insight into the chartist stuff the Alpha Trader folks are touting. It’s not my thing, but that doesn’t mean it mightn’t work. Enjoy!

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