Quant Investing

with Tal Davidson

Deep Value Screeners

Deep Value

Deep Value (DV) is a quantitative investing strategy which selects for investment the cheapest stocks in the universe based on their valuation multiple.
DV is a great place to find compelling investment ideas.

Deep Value stocks are the absolute cheapest stocks, regardless of their quality. Companies get so cheap when they have problems. Such problems could be financial losses, industry and regulatory risks, failing management and lousy products. As most investors will avoid failing companies at any price, stocks of failing companies get cheap relative to their intrinsic value, very cheap. Deep Value investors realize that even companies with problems have some value in them. Sometime it is their assets, other times it is their know how. When a company is failing, there are huge forces pushing it to improve and return to normality. Most companies do return back to the average, and their stock price jump as a result. Investing in a diversified list of Deep Value stocks thus beats the market.

Tobias Carlisle wrote a book about Deep Value, Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, and a website, The Acquirer Multiple, where he advocates investing in a diversified bucket of stocks selected for their low EV/EBIT (which he calls The Acquirer Multiple (r)).
The Deep Value Screeners on this website allow investors to build their own quantitative Deep Value portfolio based on their preferences. Such a portfolio is expected to beat the market over the long term. The screeners prune thousands of SEC filings and perform fundamental analysis on a scale which no human can practically perform. 

The following table shows the average returns of the top 30 stocks selected with the EV/EBIT Screener and held for a year, vs. the S&P 500 benchmark:

Deep Value stocks are the absolute cheapest stocks, regardless of their quality. Companies get so cheap when they have problems. Such problems could be financial losses, industry and regulatory risks, failing management and lousy products. As most investors will avoid failing companies at any price, stocks of failing companies get cheap relative to their intrinsic value, very cheap. Deep Value investors realize that even companies with problems have some value in them. Sometime it is their assets, other times it is their know how. When a company is failing, there are huge forces pushing it to improve and return to normality. Most companies do return back to the average, and their stock price jump as a result. Investing in a diversified list of Deep Value stocks thus beats the market.

Tobias Carlisle wrote a book about Deep Value, Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, and a website, The Acquirer Multiple, where he advocates investing in a diversified bucket of stocks selected for their low EV/EBIT (which he calls The Acquirer Multiple (r)).
The Deep Value Screeners on this website allow investors to build their own quantitative Deep Value portfolio based on their preferences. Such a portfolio is expected to beat the market over the long term. The screeners prune thousands of SEC filings and perform fundamental analysis on a scale which no human can practically perform. 

The following table shows the average returns of the top 30 stocks selected with the EV/EBIT Screener and held for a year, vs. the S&P 500 benchmark:

DV Stocks EV/EBIT Backtesting

In most years of the last two decades, the average Quantitative Value stock has beaten the S&P 500. The average yearly return of a QV stock during those 20 years is 13.6% vs. the  S&P 500 with 6.88% (incl. dividends). The Excess returns (aka Alpha) is thus 6.72% (!!!).

Another way to generate Deep Value stock ideas is use a composite (combination) of valuation multiples. The most elaborate research on composite multiples was perform by James O'Shaunessy, and described in detail in his book What Works on Wall Street. O'Shaunessy had found that a composite comprised of the average ranks of the following 6 valuation multiples performs best: P/E, P/B, P/FCF, EV/Sales, EV/EBIT and Shareholder's yield. The composite is called VC2 (Value Composite 2). 

The following table shows the average returns of the top 30 stocks selected with the EV/EBIT Screener and held for a year, vs. the S&P 500 benchmark:

DV (VC2) Backtesting

In most years of the last two decades, the average Quantitative Value stock has beaten the S&P 500. The average yearly return of a QV stock during those 20 years is 15.13% vs. the  S&P 500 with 6.88% (incl. dividends). The Excess returns (aka Alpha) is thus 8.25% (!!!).

By using the Quantitative Value screener to find new stock ideas, investors will both save time and increase their chances of finding winning stocks.

Deep Value – What Is It?

  • What is Deep Value?
  • Why does Deep Value outperform?
  • How did we design our market-beating model?

    • Price and valuation multiples are updated in 20min delay.
    Last update date – see rightmost column.

    Deep Value Screener based on EV/EBIT Valuation Rank

    Deep Value (EV/EBIT) Screener

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    Deep Value Screener based on VC2 (Composite Value) Valuation Rank

    How To Use The Deep Value Screeners


    The stocks in the screener are sorted based on a "Cheapness" Rank. In the EV/EBIT screener, the cheapness rank is depicts how low the EV/EBIT of the stock is compared to other stocks in the universe. For example, a rank of 95% means that the stock is cheaper than 95% of the stocks. Higher is better.  Similarily, in the VC2 screener, we use the Value Composite 2 metric as our cheapness rank. Here as well, higher is better.

    The screeners include two metrics which correspond to the volatility of stocks. The first is the Beta3Y Rank, which denotes how low the 3-year monthly beta of the stock is compared to other other stocks in the universe. The second is the Volatility Rank which uses our own proprietary formula to assess stock price volatility. In both, higher is better (lower volatility/beta). Our research shows the stocks with Beta3y Rank >50%, or Volatility Rank > 50%, typically perform better. In our quant portfolios based on Deep Value strategy we use the rule Beta3y Rank > 50% (i.e. Beta 3Y in the lowest half of the universe).

    To give a fuller picture of the company and the situation, we provide key Valuation and Quality indicators for each highlighter stock. Popular Valuation metrics are listed in light blue. Quality factors are listed in purple. 

    Feel free to use the sliders above the screener to filter the table per your own preferences.