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A Reward/Risk View of the Big Names

By Hewitt Heiserman

About this article:
Last week I highlighted Wall Street's 10 best reward/risk companies. But with an average market value of just $1.4 billion each, most of these names are too small for institutional investors to own. So in this column we turn our attention to the S&P 500's top scorers, which boast an average market value of $23 billion each. Now that's big. But first, let's review what this mechanical strategy is about. The purpose of reward/risk is to find stocks of companies that offer lots of upside per unit of potential loss. Call it a "heads I win a lot, tails I lose a little" stock-picking method. Over time, this cautious, probabilistic strategy can turn a modest sum into a substantial portfolio. How to find these kinds of companies? Our process is to estimate how many points a stock will rise if it reaches our estimate of intrinsic value, and...

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