SubscribeFriday Stock Screen : Great Expectations for Profits
January 18, 2008
It is Friday afternoon and the markets have not been fun to watch. It has been a long week… So, what better way to spend the day than doing some research and combing through a few stock screens. Here is one that may help to generate some ideas.
According to the MSN Money screener, “This search should appeal particularly to “value” investors, but it is biased toward smaller companies and looks across all sectors. It includes parameters such as high return on investment and low debt to equity ratio in order to set a quality bar. The result: Beaten-up stocks with a lot of potential growth ahead.”
Remember, this should be used for idea generation as the market throwing curve-balls and it is hard to trust any one strategy these days.
Criteria for Screen:
P/E Ratio: Current <= 20
Market Capitalization <= $1 billion
Debt to Equity Ratio <= 0.5
EPS Growth Next 5 Yr >= 20
Return on Equity >= 10
Price/Sales Ratio <= 2
Results: (HSOA) (FRPT) (NTRI) (AEIS) (BRNC) (LNDC) (SMMX) (EXFO) (SLXP)(SIMG) (CTRN) (VVTV) (FMR) (TRID) (VLCM) (ASTE) (ETEL) (GIII) (TWGP) (GIFI) (PRX) (SNHY) (NVTL) (RECN) (HDIX)
Learn how to create and implement stock screens for profitable results.
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Horowitz & Company Clients do not hold positions in stocks mentioned.
SAPI Slugs 2008 - Quant Screen Results
November 29, 2007
S&P Index Slugs (SAPI Slugs) Adapted from Pages 44-45 of The Disciplined Investor - Essential Strategies for Success
According to MSN Money, this simple but effective value search presents a pure yield play. It is similar but potentially superior to the better-known “Dogs of the Dow” search we reviewed on November 14th because it draws from a wider pool of large-cap stocks and includes a secondary financial-strength overlay.
The search was also developed and tested by money manager and author Jim O’Shaughnessy. The strategy calls for buying the top 20 stocks from the result set of this search, ranked by dividend yield. These should be held for 1 year and then rescreened and rebalanced. It can be combined with O’Shaughnessy’s Momentum Growth search to create a balanced 30-stock, 1-year portfolio. This search criteria and others are available in the stock screener section of the MSN Money website and can also be downloaded from The Disciplined Investor website. Below is the criteria used to create the screen with the MSN Money Deluxe Screener.
The theory of using more than one screen is to allow for greater diversification within the portfolio. This way, if one particular screening method is sorely out of favor, the other may help to avoid massive losses. In his research, O’Shaughnessy built portfolios for one year each. Translated, this means that once you buy the resulting stocks and effectively hold them for 52 weeks, you can rerun the screen to find the stocks to include in the next cycle.For most individual investors, this is a tedious task and can result in excessive trading fees. Also, as has been discussed, the tax implications alone could be extremely detrimental to a portfolio’s performance. This is precisely why these methods are often used within tax-deferred accounts along with additional fundamental overlays. Suffice it to say that these screens should be used as initial idea generators, not as absolute methodologies.
Click Table to Enlarge
The theory of using more than one screen is to allow for greater diversification within the portfolio. This way, if one particular screening method is sorely out of favor, the other may help to avoid massive losses. In his research, O’Shaughnessy built portfolios for one year each. Translated, this means that once you buy the resulting stocks and effectively hold them for 52 weeks, you can rerun the screen to find the stocks to include in the next cycle. For most individual investors, this is a tedious task and can result in excessive trading fees.
Also, as has been discussed, the tax implications alone could be extremely detrimental to a portfolio’s performance. This is precisely why these methods are often used within tax-deferred accounts along with additional fundamental overlays. Suffice it to say that these screens should be used as initial idea generators, not as absolute methodologies.
This chart shows a 1-Year price performance for the 10 highest yielding stocks within the SAPI Slugs using the above screening criteria.
Screen: Dogs of the Dow - 2008 Preview
November 14, 2007
Each year, the Dogs-of-the-Dow are recalculated in January to find the 10 DJIA members with the highest dividend yield. This year there have been few changes to the names that look to be included in this strategy for 2008. Some of the reason is because of the problems that occurred in 2007 for some of the DJIA names. We also need to consider the fact that higher yielding stocks are concentrated within a small subset of the DJIA.
As we are seeing an immense level of volatility, it seems to be a good idea to look at a strategy that invests in companies that have (or at least seem to have) high quality and provide a decent dividend yield. The benefit to investors is that these are Mega-Caps and are considered “blue-chips.” The contrarian view which this strategy/screen is based on has often outpaced the DJIA. That is appealing in a time when there is such a great deal of uncertainty.
Below is the list of “Dogs” based on current prices and yields. The table also shows stocks which were included in 2007 and, by a process of elimination, reveals which stocks should be in the 2008 list.
Horowitz & Company clients may have long and/or short positions in the securities mentioned.
Earnings Momentum and Analyst Upgrade Screen
October 9, 2007
I have been busy. Too busy. It has been a whirlwind of book, audiobook, podcast, clients, portfolios and much more. So, I apologize for not being close to the keyboard. That said, I realized that there were many emails and many comments about two recent posts that focused on “Quant screens” and thought that one more couldn’t hurt…
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(Excerpt from The Disciplined Investor)
The MSN Money stock-screening tool makes available some great ways to unearth sometimes buried opportunities. One that has been found to be very profitable in an upward momentum bull market is a screen that searches out the information reported by seasoned analysts. The very thought that analysts are raising their assumptions can cause the sentiment surrounding a stock to quickly change. As has been seen from the bull markets that occurred during the latter part of the 90s, earning surprises both to the up and downsides have a habit of creating either prosperity or poverty. This particular screen is meant to be used as a brainstorming tool for those stocks that may be possible short to mid-term momentum plays.
When an analyst that closely studies a certain company or sector changes his or her rating or earnings estimate for that company or sector, it is a pretty good sign that there is something more going on than meets the eye. Companies such as Zacks Investment Research are in the business of following these analysts and tracking the changes that they make to their ratings and earnings estimates.
This search focuses on the companies with the highest earnings-per-share growth projected for next year, for which the analysts have increased their estimates. It also adds additional parameters and overlays to find the stocks with the greatest recent price changes and upward-moving technical trends.
The Screen: Momentum Earnings Up
You will undoubtedly find many stocks that you have probably never heard of within these results. Caveat emptor! Try not to let yourself get sucked into the temptation of following the historic returns. Be sure to keep a cool head and think about the company and its longer-term prospects.
The screen was run on the MSN Money Site with the following criteria:
Stocks from Screen (10/9/2007) : (BGP) (EQIX) (NAVI) (LYV) (BLOG) (XTXI) (OMTR) (EYE) (MDCO) (CNO) (CNTF) (CRM) (OMRI) (OCNF) (MFA) (OHB) (SLH) (OPTM) (MMR) (WRES) (ANH) (OMN) (ONXX) (INTV) (MOGN)
Disclosure: Horowitz & Company clients may hold Lng or Short positions in the stocks mentioned
PEG Ratio Plays
September 21, 2007
I am often asked to explain what is the PEG Ratio. This is a great tool to help understand the valuation of a stock in the context of the future earnings potential. This is a tool that should be used in conjunction with others in order to discern of the stock is reasonably valued.
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At the bottom of this post is a listing of those stocks that have PEG Ratios significantly below their peer group. The MSN Money Stock Screener was used to find candidates within the Large Cap Universe of the S&P 1500.
Excerpt from The Disciplined Investor - (from pages 84-85)
The P/E ratio is helpful when looking at the relative valuation of one stock as compared to another, but it is only useful when accompanied by the understanding that it should only be used to compare stocks in similar sectors and industries. It would make no sense at all to compare the P/E of a utility stock to the P/E of a technology stock—that would be like comparing apples to oranges.
To level the field, an excellent derivation of the P/E ratio is used to see if a stock is valued fairly compared to its own future growth. This is called the PEG ratio - or earnings to growth ratio.
PEG RATIO
The calculation: price/earnings (P/E) ratio divided by expected per-share earnings growth over the next year.
More than likely, a result that is less than one tells us that we may have a good investment that is undervalued for the time being. On the other hand, a result of more than one is usually a sign that the position is valued higher than it should be. Originally, the PEG Ratio was developed to look at stock statistics in more than one dimension. By adding expected growth to the P/E ratio, it will effectively provide a comparison tool to level the paying field when valuing stocks.
Originally, the PEG Ratio was developed to look at stock statistics in more than one dimension. By adding expected growth to the P/E ratio, it will effectively provide a comparison tool to level the paying field when valuing stocks. Small to Mid-Cap stocks are well suited to utilize the PEG Ratio as the initial screening tool since they usually pay little or no dividends. In effect, is a good tool for some stocks that are usually more difficult to value using traditional methods.
Just as it is true that the ratio is beneficial for smaller stocks, larger stocks should have an additional requirement to help create a more usable and more appropriate valuation tool. By simply adding an overlay of dividend yield along with the earnings, a much better outcome can be crafted for largecap stocks.
Here is a quick guide for using the PEG Ratio as a part of your investment disciplines:
PEG Ratio Signal Guide
.50 or less -> Strong Buy
.50 to .75 ->Buy
.75 to 1.00 ->Hold
1.00 to 1.25 ->Possible Sell
1.25 to 1.75-> Consider Shorting
Over 1.75 ->Short/Sell
TOP 5 as of 9/21/2007- (RIG) (NE) (AVP) (MUR) (MOLX) (MNST)
CLICK BELOW FOR LIST
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