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It's a matter of fact that some corporations carry a significant level of debt, and certainly a number of screens have explored the notion of debt impacting stock returns (with mixed success if memory serves me correctly).

I've been thinking about the situation we are in with regards to the markets, and like many people, it's easy to conclude that we're in a high-risk environment where a lot of things could go wrong. And at the risk of dating myself, I'm at that age where taking on high risk is a fools errand.

One of the big news items of late is the debt level of the USA, and the risks associated with that debt: higher interest rates mean much higher costs to service that debt, and now the very real possibility of many nations not having much interest in helping pay for the party that the USA has experienced for many years.

Corporate debt could be problematic as well - the cost of servicing debt is growing, and... it could get harder to attract bond buyers (seems these days everyone wants to own equity, not bonds, but maybe that's just me). It would also seem that high corporate debt could scare off merger interest, or any type of takeover, going private, etc.

With that in mind, I went to backtest.org. Yes, I know the new back tester has more capability and newer data, but I wanted to spend 15 minutes and just play around. Jamie's tester is still a thing of beauty, and super easy to use!

What I'm presenting here is *not* something I spent hours trying out to see what I could curve fit (you'll have to trust me on this one).

I started with weak companies - the bottom 50 in the SI Pro universe as rated by rs26w. As a final selection, I used LT Debt / total capital Y1, and took the top 10.

https://backtest.org/D6wbws for the curious.....

Yes, the GSD is frightening at 102. But a CAGR of -40, with every year since 2011 being negative, got my attention. Especially given that this was the first thing I tried, with no other filters or sorts, etc. It's about as simple as it gets.

Running that same screen but picking the bottom 10 debt / total capital gives a CAGR of 14. https://backtest.org/OoER86

When you see a CAGR spread like that with one parameter switch, it gets your attention.

I know some people are questioning how much appetite they have for US stocks at this point. Totally get that. But perhaps it's worth thinking about taking it one step further and placing a few bets on the short side of things?

I would love to hear what people think, and what refinements you'd suggest to bring the GSD down in particular.

Thx., Lee

Great thought!

Except have you considered whether RS26W sort by itself embeds a self-fulfill bias?

ie if your start yr is 2011 - is the RS26W as of 2010 and so forth for each subsequent year?

Best

gtr1 results from 19870302 to 20250507: -38 CAGR, 89 GSD, -100 MDD.

blended 20% short with 80% SPY: 17 CAGR, 18 GSD, -51 MDD. This is using the Cash Rate as the borrowing cost. What is a reasonable borrowing cost number to use in the backtest? Using 10% + Cash Rate reduces the CAGR to 14.

S&P 500 Market Cap weighted (SPY): 11 CAGR, 18 GSD, -55 MDD.

https://gtr1.net/2013/?~LowMo_HighDebt:h21f0.4::st...

https://gtr1.net/2013/blend.cgi?~blend_LowMo_HighD...

@lizgdal - Thanks for those links. I'll take a look at those later today and experiment some more with that.

I'm not quite sure what a reasonable cash rate would be to consider...

I'm also very curious to see if people have thoughts on additional filters and/or steps to improve the volatility of the screen.

Screen development certainly seems to be in a bit of a lull, but would love to hear other ideas.

Lee

This is a better version: recent 10Q, no mergers, price>2, and uses Equity/Debt ratio.
{LowMo_HighDebt2} 31 CAGR, 75 GSD.

https://gtr1.net/2013/?~LowMo_HighDebt2:h21::styp....

The most significant step in this screen is: 6-month return bottom 50.

I would expect most of these stocks to be heavily shorted, and so difficult to borrow. But I don't short stocks, and so someone else may have a better view.

Outstanding idea! The classic small cap short screens posted weekly probably do very well as shorts in this environment as well. I can't get at many of the posted stocks because Fido says they're not available to short. The point is you may need to tweak the parameters to keep the cap / float above a usual minimum level.

Oh for the good old days when Datek would let you short a stock that they were not able to borrow.

These are today's {LowMo_HighDebt2} picks:

Ticker  Price   TR_6month  [Debt]  [Equity]  [Equity]/[Debt]          Company Name
 BYND    2.51      -57      1221     -650         -0.53              BEYOND MEAT INC
 LAZR    4.53      -66       535     -221         -0.41       LUMINAR TECHNOLOGIES INC CL A
 RSLS    6.25      -95       1         0          -0.33         RESHAPE LIFESCIENCES INC
 IRBT    2.79      -60       249      -1           0.00                IROBOT CORP
 WOLF    3.87      -54      6521     213           0.03               WOLFSPEED INC
  NBR   31.65      -62      2685     343           0.13           NABORS INDUSTRIES LTD
 WULF    3.83      -53       492     161           0.33               TERAWULF INC
 JELD    4.44      -57      1315     452           0.34           JELD WEN HOLDING INC
 AMRC   14.57      -54      2368     1012          0.43             AMERESCO INC CL A
 CABO   166.46     -56      3564     1776          0.50               CABLE ONE INC
 STSS    4.55      -99       4         2           0.53           SHARPS TECHNOLOGY INC
  KSS    8.06      -54      7159     3802          0.53                KOHL S CORP
 TROX    5.69      -53      3103     1674          0.54            TRONOX HOLDINGS PLC
 VSTS    6.42      -54      1403     876           0.62                VESTIS CORP
 DNUT    3.21      -73      1451     1102          0.76             KRISPY KREME INC
 FNKO    5.16      -58       277     213           0.77               FUNKO INC CL A
 SRPT   36.20      -70      1357     1143          0.84         SAREPTA THERAPEUTICS INC
 MRVI    2.06      -74       377     325           0.86           MARAVAI LIFESCIENCES
 FLNC    5.78      -71       404     388           0.96          FLUENCE ENERGY INC CL A
  EVH    9.27      -62       870     936           1.08          EVOLENT HEALTH INC CL A

BYND: falling Sales, negative Net Income, number of shares increasing, Equity falling, Altman Z-score indicates distressed.
39% of BYND Shares are Short.
3% of TSLA Shares are Short.

bid/ask on BYND today is $2.50/2.49. Maybe shares could be borrowed.

Shares Outstanding 76.47M
Shares Short (4/30/2025) 30.11M
Short Ratio (4/30/2025) 14.44
Short % of Shares Outstanding (4/30/2025) 39.41%
Shares Short (prior month 3/31/2025) 29.81M
https://finance.yahoo.com/quote/BYND/key-statistic...


Shares Outstanding 3.22B
Shares Short (4/30/2025) 81.32M
Short Ratio (4/30/2025) 0.58
Short % of Shares Outstanding (4/30/2025) 2.52%
Shares Short (prior month 3/31/2025) 76.46M
https://finance.yahoo.com/quote/TSLA/key-statistic...

Based on the picks of the updated screen, I checked the top 15 picks at Fidelity today to see what shares would be available to short:

Ticker	Shortable	Fee (% annualized)
BYND	Y		40%
LAZR	Y		52%
RSLS	Y		192%
IRBT	Y		0%
WOLF	Y		50%
NBR	Y		0%
WULF	Y		0%
JELD	Y		0%
AMRC	Y		0%
CABO	Y		0%
STSS	Y		105%
KSS	N		
TROX	Y		0%
VSTS	Y		0%
DNUT	Y		0%

Of the 15, 14 are shortable, but many at a very high fee (Hard To Borrow cost). However, 9 of the 15 are available to short at no cost, which honestly was a bit better than I thought it might be.

I plan to continue to research this screening idea a bit, and if I find anything else of interest, I'll be sure to post.

Appreciate everyone's input - and especially lizgdal for the screen definition, and recent picks.

Lee

One thought I had, I'd generally rather take a short position on small volatile stocks by purchasing deep ITM puts - if the stock is trading @ $7/sh I might buy a $12 (or so) put expiring 6+ months out. Reason being, I'm too scared a stock like that could jump 1000%, so I'm avoiding a catastrophic loss. That would especially be true for a stock I'm shorting based on a screen, where I don't necessarily know a lot about the company. So I'd want stocks that had options. That may be more restrictive than requiring the ability to short them, or short them w/o a high borrowing fee.

Just a thought.

John

These are today's {LowMo_HighDebt2} picks...

And here are the changes since 5/15:

SPY   1.036
.
BYND  1.376
LAZR  0.729
RSLS  0.421
IRBT  1.162
WOLF  0.133
NBR   0.920
WULF  1.116
JELD  0.977
AMRC  1.056
CABO  0.790
STSS  1.212
KSS   0.981
TROX  1.074
VSTS  0.993
DNUT  0.828

Top 5 average = 0.764
Top 10 average = 0.868
Top 15 average = 0.918

DB2

Those are some UGLY numbers in a little over a month.

Those are some UGLY numbers in a little over a month.

And while the market was upward bound.

DB2

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