Sabermetrics has come to stock-picking.
As if we didn't have enough ways to measure stocks against one another, Goldman Sachs equity analyst Robert Boroujerdi is out with a note to clients ahead of the World Series that takes three popular baseball "sabermetrics" and turns them into metrics for picking stocks.
Sabermetrics, or advanced stats, is the method of evaluating baseball players popularized in Michael Lewis' book "Moneyball" that evaluates players based on stats other than popular measures like batting average, home runs, and RBIs.
The sabermetric baskets Goldman divides stocks into are proxies for DER (defensive efficiency ratio), VORP (value over replacement player), and OPS (on-base-plus-slugging percentage).
Basically, DER stocks have strong free cash flow, VORP stocks earn excess returns on their invested capital, and OPS stocks have strong operating cash flows plus a commitment to dividends and buybacks.
Goldman finds nine stocks for each basket.
Goldman's DER stocks are:Amgen (AMGN) EMC (EMC) KAR Auction Services (KAR) L-3 Communication (LLL) Wyndham Worldwide (WYN) Oracle (ORCL) Macy's (M) International Paper (IP) Apple (AAPL)
Goldman's VORP stocks are:Intuitive Surgical (ISRG) MasterCard (MA) Mead Johnson (MJN) Monster Beverage (MNST) Viacom (VIAB) Gartner (IT) Facebook (FB) Computer Sciences (CSC) Apple (AAPL)
And Goldman's OPS stocks are:Macy's (M) International Paper (IP) Apple (AAPL) Cooper Tire & Rubber (CTB) Rock-Tenn (RKT) Computer Sciences (CSC) Delphi Automotive (DLPH) Comcast (CMCSA) Pacaar (PCAR)
It's all kind of a stretch, which is very much how some people feel about sabermetrics.
Some popular baseball sabermetrics include WAR (wins above replacement), BABIP (batting average on balls in play), and PECOTA (player empirical comparison and optimization test algorithm). These are not made up (by me at least, I mean someone made them up).
And these odd names for sabermetrics stats make for a long-running "smart" baseball writing vs. "dumb" baseball writing internet debate that might be more popular than actual baseball.
The World Series, which pits the San Francisco Giants against the Kansas City Royals, starts on Tuesday night.
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