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Number Cruncher

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Yin Luo's top oil picks in a volatile market Add to ...

WHAT ARE WE LOOKING FOR? It's time for a visit with Yin Luo, quantitative strategist at Macquarie Securities, to get his strategy for September. This month, he is trying to find the best oil stocks to own in a volatile market. REVIEW OF LAST MONTH Since this column began more than a year ago, Mr. Luo has recommended a basket of stocks for each month based on a strategy that he believes will work in the market conditions at the time. Last month, he recommended a portfolio of income trusts. The portfolio returned 5.8 per cent in the month, while an equally weighted income trust index returned 4.9 per cent. Since he started to contribute to the column, his strategy has outperformed the benchmark in 11 out of 15 months. THEME FOR THIS MONTH With oil stocks plunging nearly every day, Mr. Luo is looking for a strategy for buying energy stocks in both up and down markets, and in both quiet and volatile times for commodities. Mr. Luo tested the stocks in the sector and found four signals for the stocks that will perform best: price-to-training earnings ratios, price momentum, earnings revisions and improving return on equity. His recommendations are based on those factors and his quantitative model, called EMC2-CAT, which rates stocks based on such criteria as value, growth, momentum, analyst sentiment and positive trading patterns.

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