Originally published on December 30, 2023
I have published the Zen Ten list every December since 2008. I choose my favorites and keep them all year round – no trading.
Before revealing my new stock picks for 2024, a quick review of last year’s picks is in order. Table 1 contains the details.
Table 1. Performance of Zen Ten 2023
As you can see, my 2023 picks outperformed (by a factor of 2X) the benchmark VTI. I don’t select start and end dates, I use the actual start and end dates for all titles, including VTI, based on the date I published the listing.
Why should you pay attention to this list
I have been trading and managing money for 30 years. I’m still a stock picker at heart, but now I only do it for my own account, that of my family and to consult clients who ask me to select stocks for them.
I don’t claim to have any particular gift for spotting the next Google or Amazon. I don’t have a crystal ball. I’m skilled, but it takes more than skill to get the results I get: it also takes a bit of luck.
I managed to beat the market by an average of 3.7% per year over the last 10 years. Since I started using this list with my clients in 2000, I have beaten the market by an average of 9.1% per year.
Table 2. My complete journey until 2000
My record is not just down to luck. I have a system and it has been running since 2000. The problem, of course, is that any system can stop working at any time without warning. I’ll explain how my system works in a minute, but first take a look at the results of my picks from 2000 (the first year I used them with my clients’ money) through 2023.
In addition to my skills and hard work, my success in stock picking is also due to a strict methodology that I follow, no matter what. I don’t just throw darts Wall Street Journal stock tables. There is a method behind what I do. But anyone who beats the market repeatedly, as I have throughout my career, must have some advantage. My advantage is my methodology.
Now let’s move on to the question of how I arrive at my stock selection. Over the past ten years, I have published a list of stocks that I believe would perform strongly over the next 12 months. Finding these values involves filtering the universe of available values according to three different criteria. Here’s a quick overview.
Starting with a universe of 8,000 stocks, I first select those that are rated 1 or 2 by Zacks Investment Research. This screen is entirely devoted to earnings: growth, positive surprises and upward revisions. This reduces the list of candidates to around 900 names.
Next, I cross-reference the Zacks list with Refinitiv’s top-rated stocks. The Refinitiv screen looks for top scores for value, quality, profit growth and financial stability. This complements the earnings focus of the Zacks screen. The list of candidates who passed these two exams is now reduced to around 400.
Finally, I run the surviving names through the StockRover screen and only keep the names that scored at least 80 on their 100-point scale for profitability, sustainability, and margin of safety. The screen consolidates the opinions of all the analysts who cover the stocks and gives more weight to the analysts who have proven to be most accurate on each of the stocks over time.
The 10 stocks that passed these three screens for 2024 appear below:
Table 3. My top picks for 2024
The benefit of this three-step selection process is that each selection focuses on a different aspect of what makes a stock attractive. This is a Bayesian approach to stock selection. You start with a prior probability (the Zacks Rank has a history of identifying winning stocks) and you further refine the list by adding layers of uncorrelated selection criteria.
I didn’t spend months analyzing financial statements or visiting these companies in person. I count on the analyst community to do it for me. My methodology takes into account a consensus of top analysts and how their earnings estimates have changed over time.
I can be reasonably confident that these are solid businesses producing solid and growing profits, and can be a powerful addition to your own watchlist as long as you do your due diligence. I don’t recommend anyone blindly follow my choices – always do your own research.
Editor’s Note: The summary bullet points in this article were chosen by the Seeking Alpha editors.