This screen seeks to emulate the style of Bill Miller, manager of Legg Mason Value Trust. Miller’s strategy focuses on identifying securities that are trading below their intrinsic value, but differs from many value managers in that he focuses on cash earnings, not accounting earnings. He looks for firms that may be undervalued based on the present value of future cashflows, although this is not easy to screen for in detail. He says: "Ideally, what we want is a company... that has tremendous long-term economics and those economics are either currently obscured by macroeconomic factors, industry factors, company-specific factors, or just the immaturity of the business." Diversification is a crucial element in Miller’s strategy but he aims for diversification among the stocks it incorporates, rather than the sheer quantity. By focusing on companies that are being shunned by the market, this strategy takes on higher risks in hope of higher returns. The value moniker for his Fund is perhaps misleading because Miller has bought many Internet “growth” stocks. You can read more about Miller's approach here. more »
A momentum screen based on buying stocks with rising analyst earnings estimate revisions in light of empirical findings that stocks with their estimates revised often outperform the market over at least the next 12 months. Although investing on the basis of broker recommendations alone does not appear to be a successful strategy because of the bias in those recommendations, research suggests that focusing on recent changes in broker recommendations is more fruitful, particularly in combination with other signals. You can read more here. more »
Kirkpatrick’s Value Screen combines quantitative filters for relative price strength and relative reported earnings growth, with a value criterion - using relative price-to-sales percentiles, Kirkpatrick arbitrarily selected only those stocks in the 30th percentile or lower. Despite the success of his Growth Model, Kirkpatrick was concerned about the fact that its performance had occurred during one of the strongest bull markets in history. He wanted to strengthen the system against capital loss to protect against the inevitable market reversal. He believed relative price strength would not be effective during a market downturn and could lead to significant capital losses. For Kirkpatrick, the alternative was to reduce the risk of the portfolio by beginning with a group of stocks with low valuations. Kirkpatrick also looks for growth companies with market capitalizations of at least $500 million and share prices of at least $10. You can read more here. more »
A hardcore intrinsic value investing screen based on buying with a significant Margin of Safety but not as demanding as Graham's set of Defensive Screen criteria. Despite the name, this is not a growth screen. Graham felt defensive investors should confine their holdings to the shares of large, prominent/important, and conservatively financed companies with long histories of profitable operations. In contrast, entreprising investors could expand their universe outside of these “important” companies. He suggests looking at i) the relatively unpopular large company, ii) “special situations”, and iii) “bargain issues”. more »
This is a dividend-focused strategy loosely on the "Growth & Income Winners" screen outlined by Kevin Matras in his book, entitled Finding #1 Stocks. The approach starts out looking for solid growth parameters then drills down to the best dividend payers of the group. In Matras' version, however, the primary filter is the US-focused Zacks Rank (a proprietary metric analysing analyst forecasts for i) Agreement, ii) Magnitude, iii) Upside Potential, Surprise). However, we simplify this to just look for a positive change in analyst forecasts over the last quarter instead. Matras envisages the top 7 by dividend yield, but with no more than 2 in each sector - although it's hard to find 7 such stocks qualifying on the UK market. more »
This screen is loosely based on the influential work of Richard Sloan from the University of Michigan, published in 1996 documenting what is referred to as the “accrual anomaly”. A pound of earnings can be comprised of assumed non-cash earnings called “accruals.” His landmark 1996 paper revealed that shares of companies with small or negative accruals vastly outperform (+10%) those of companies with large ones His paper found that investors focus too heavily on earnings and not on cash generation. They value the earnings of a high accrual company just as highly as the same earnings of a low accrual company, even though the high accrual company’s earnings are more likely to reverse in future years. When future earnings reverse, investors are “surprised” and sell off the stock causing the stock price to decline. Similarly, when a low accrual company’s earnings accelerate in future years, they are surprised in a good way. more »
Kirkpatrick’s Growth Screen combines quantitative filters for relative price strength and relative reported earnings growth, and then involves point & figure chart analysis to determine whether the stock is in an upward trend. Kirkpatrick also looks for growth companies with market capitalizations of at least $1 billion and share prices of at least $10. Kirkpatrick uses point & figure charts to help in the buy and sell decision process. He only buys stocks for his Growth Model when they are in an upward trend, as indicated by two higher highs in a three-point reversal point & figure chart. You can read more here. more »
In 2012, the team at Soc Gen introduced their so called ‘SG Quality Income Index’ - an index that aims to track stocks with strong fundamentals and good yields. Many in the market now appreciate that both higher ‘quality’ stocks and higher yielding stocks tend to outperform, but according to the research note, stocks that share both qualities put together standout total returns that have averaged 11.6% per year since 1990, more than doubling the return of the global equity markets at a significantly reduced volatility. But what is more striking is the return of the portfolio from when the market topped in 2000 to 2012 - a sideways market and a genuinely miserable time for all. While the total return of stock markets has actually been negative in that time period, the Quality Income index almost tripled. Read the full article. more »
This is a combined value/momentum screen loosely based on the AAII "Value on the Move" screen and Jack Hough's "Impatient Value" screen in "Your Next Great Stock". It tries to uncover stocks that are bargain priced but avoid "value trap" stocks, which may languish for years until the market recognizes their “true” worth. Value and momentum investing styles might seem to have little in common but, in fact, research also indicates that momentum can be a catalyst to value. The screen looks for two attributes: A share price within 10% cent of its 52-week high (the momentum part of the equation), and a PEG ratio – price-earnings to growth – of less than 1.5 (the value part). The PEG ratio is simply the forward price-to-earnings multiple divided by the projected growth rate in earnings. more »
A blue-chip focused screen focused on buying blue-chip stocks whose dividend yields are near the high of their historical ranges and selling when the dividend yield declines to historic lows. Geraldine Weiss was the founding editor of Investment Quality Trends - one of the longest-lived investment newsletters. According to a 2002 Forbes article, she has seven criteria in total (but the last criteria comprises a further six "blue-chips only" conditions). A stock: 1. Must be undervalued as measured by its dividend yield on a historical basis. 2. Must be a growth stock that has raised dividends at a compound annual rate of at least 10% over the past 12 years. 3. Is selling for two times book value or less. 4. Has a P/E ratio of 20-to-1 or below. 5. Has a dividend payout ratio in the 50% area (or less) to ensure dividend safety with room for growth. 6. Debt is 50% or less of total capitalization. 7. Meets all six of our Blue Chip Criteria: dividend raised five times in the last 12 years, carries an A rating from S&P, has at least 5 million shares outstanding, at least 80 institutional investors hold the stock, 25 uninterrupted years of dividends and earnings improvements in seven of the last 12 years. While it’s difficult to replicate this screen exactly for the UK market, we’ve produced a Geraldine Weiss-lite version along similar lines. more »
A dividend screen mirroring the famous "Dogs of the Dow" approach which selects the ten FTSE-100 stocks whose dividend is the highest fraction of their price. This version uses the consensus forecast dividend yield, rather than the historic yield. more »
This screen focuses on a 9 pronged formula focusing on earnings growth and momentum. It has proven to be one of the most successful stock screeens over the last decade. The CANSLIM investing approach has become very famous and well followed in America after being well promoted by Bill O'Neil, a successful trader and founder of Investors Business Daily. The mnemonic stands for the first letter of each of the following: Current Earnings - current interim earnings strongly accelerating vs the prior year; Annual Earnings - annual earnings increases in recent years; New Highs, New Products, New Management - some kind of catalyst; Supply & Demand - small supply of shares and strong demand for the company's stock; Leaders over Laggards - choose the best companies in each sector; Institutional Support - but avoid stocks that are over-owned; Market - only buy when the broad market is in a bull phase. more »
A Growth at a Reasonable price (GARP) investing strategy that uses both fundamental analysis and market timing. It focuses on strong growth in earnings and sales, a reasonable price-earnings ratio given the company's growth rate, insider support, and relatively strong price action. Martin E. Zweig was a reputed US growth money manager back in the 1990’s as well as an investment newsletter writer. He was named stock picker of the year 2 times in a row and wrote a book titled “Winning on Wall Street”, which outlines his investing strategy. Zweig is essentially a growth investor but with a conservative streak, focusing on selecting growth stocks with certain value characteristics, through a system that uses both fundamental analysis and market timing. more »
This screen seeks to identify stocks that have experienced recent revisions in the earnings estimates. Specifically, it looks for stocks that have seen one analyst revision in the last week/month, to try to see if there is an analyst moving away from the consensus. This follows research that showed "bold" estimates like this have a significant impact on share price performance. Note: that this screen on its own isn't able to only pull back revisions that are "bold" (moving away from the consensus), as opposed to revisions that are "herding" (moving closer to the consensus). This will need to be done by analysing the actual list of companies produced in more detail. more »
David Dreman champions a contrarian investment approach based on interpreting market psychology and using value measures to pick stocks that are out of favour with the market. Dreman invests in out-of-favour stocks, often in out-of-favour industries, that he identifies using relatively straightforward metric criteria. "I buy stocks when they are battered. I am strict with my discipline. I always buy stocks with low price-earnings ratios, low price-to-book value ratios and higher-than-average yield. Academic studies have shown that a strategy of buying out-of-favor stocks with low P/E, price-to-book and price-to-cash flow ratios outperforms the market pretty consistently over long periods of time." more »
A value and momentum screen focused on finding under-valued, out-of-favor companies just at the point when the market is starting to recognise them. According to Lakonishok, investors have judgmental biases and behavioral weaknesses including the tendency to extrapolate the past too far into the future, to wrongly equate a good company with a good investment irrespective of price, to ignore statistical evidence and to develop a "mindset" about a company. As a result, "value stocks become underpriced and glamour stocks become overpriced relative to their fundamentals". This screen looks for: At least one of Price-to-book, price-to-cash-flow, price-earnings or price-to-sales ratios more favourable than the industry 6 Month relative strength above zero 3 month relative strength above zero EPS Surprise or a trending revision in the analyst consensus more »
This is a screen for companies that have paid increasing regular cash dividends for five or more consecutive years. It is inspired by the index run by Indxis, the Index Services unit of US player, Mergent. In addition to stipulating five or more years of increasing dividends, a stock must meet specific liquidity screening criteria. Furthermore, they must be companies with strong cash reserves, a solid balance sheet and a proven record of consistent earnings growth. You can read more here. more »
Josef Piotroski came up with a simple nine criteria scoring system to help identify bargain stocks in recovery. It is known as the F-Score and is used extensively throughout Stockopedia on Stock Reports and in screens as a measure of an improving financial health trend. But while his now famous original strategy (which we have modelled here) focused on applying the F-Score filter to only the cheapest stocks in the market, other analysts have discovered that the highest F-Scoring companies in the market in aggregate also outperform. We have filtered the market in this strategy to just highlight the companies showing a Piotroski F-Score of 9. more »
The Cornerstone Growth Screen is a growth screen which combines relative strength, earnings growth and a price-to-sales value measure, as outlined in the third edition of James O'Shaughnessy’s seminal 1996 book What Works on Wall Street. According to his book, O'Shaughnessy found that his growth strategy outperformed the market producing an annual compound return of 18% from 1954 to 1996, compared to 8.3% for the S&P 500 Index (this beat his Cornerstone Value strategy which achieved 15%, although it was more volatile). more »
David Dreman champions a contrarian investment approach based on interpreting market psychology and using value measures to pick stocks that are out of favour with the market. Dreman invests in out-of-favour stocks, often in out-of-favour industries, that he identifies using relatively straightforward metric criteria. "I buy stocks when they are battered. I am strict with my discipline. I always buy stocks with low price-earnings ratios, low price-to-book value ratios and higher-than-average yield. Academic studies have shown that a strategy of buying out-of-favor stocks with low P/E, price-to-book and price-to-cash flow ratios outperforms the market pretty consistently over long periods of time." more »
