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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 »
This is a screen that picks the stocks that are appearing most frequently across all the other screens tracked on Stockopedia - be they value, bargain, growth, quality, income or momentum (excluding short screens). By definition, this tends to be a list of relatively defensive stocks because they exhibit good fundamentals across a wide range of investing strategies. This strategy is especially interesting as the stocks on this list will by definition be being looked at by a broad range of investors - value, growth, income, momentum, quant. 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 »
Warren Buffett is the greatest living investor whose investing style was best modelled in the books by Robert Hagstrom. Buffett's approach is a highly fundamentals-focused one blending both Graham-esque value investing principles and an emphasis on the calibre of the business franchise. In essence, it looks for simple, understandable companies that have a monopoly position and pricing power (for example, through strong brand recognition), so as to ensure consistent profits and a good return on equity, but where there is significant unrecognized value. Our quantitative model here cannot aim to replicate the qualitative work and understanding that Buffett brings to stock selection, but aims to highlight the kinds of companies showing the longer term fundamental strength and cashflow generation that attracts him. more »
This screen seeks to replicate the approach of Warren Buffett, arguably the most successful living investor - based on the summary/interpretation by Mary Buffett (a former daughter-in-law) in the best-selling book, "The New Buffettology". In Chapter 13, Mary Buffett outlines a number of screening-type criteria entitled "Warren's Checklist for Potential Investments: His Ten Points of Light", which we summarise out below. Not all of these points are quantitative in nature, admittedly, but there's certainly the beginnings of a good Buffett screen, and one with a slightly different emphasis to that of the Buffett-Hagstrom screen. This version uses the Sustainable Growth method to calculate the "expected return". more »
This screen essentially looks for high ROEs at a reasonable price. Ronald Muhlenkamp is a renowned US investor and founder and president of the Muhlenkamp mutual fund. The Muhlenkamp fund averaged a 10.4% annual rate of return over the last 10 years to 2004 while the S&P 500 has returned 8.5%. His approach involves searching for companies with ROEs above the historic average for all companies (c. 14% for US companies since WW2) . In additions, ROEs should have remained stable over the last five years and the Company should be well-priced according to the PE Ratio. The strategy looks for companies with higher earnings growth than that of their industry peers. One should also look at profit and cost control via a factor such as the operating or net profit margin of the firm relative to its industry. The strategy also looks at financial stability, both through liabilities as a ratio to assets and the amount of free cash of the firm. You can read more about Muhlenkamp's investment philosophy here. and here more »
This screen seeks to replicate the approach of Warren Buffett, arguably the most successful living investor - based on the summary/interpretation by Mary Buffett (a former daughter-in-law) in the best-selling book, "The New Buffettology". In Chapter 13, Mary Buffett outlines a number of screening-type criteria entitled "Warren's Checklist for Potential Investments: His Ten Points of Light", which we summarise out below. Not all of these points are quantitative in nature, admittedly, but there's certainly the beginnings of a good Buffett screen, and one with a slightly different emphasis to that of the Buffett-Hagstrom screen. This version uses the Historical Growth method to calculate the "expected return". more »
This screen seeks to identify research-led businesses that are investing significantly in future development in order to try to identify their potential future growth before the market does. As Jack Hough notes, "When a company announces a breakthrough drug or a sudden advance in computer-chip technology, its shares often soar right away. Imagine being able to foresee which companies are due for such lucrative discoveries". Specifcially, the screen looks for R&D investment levels that are increasing and which equal at least 5% of annual sales and 5% of total assets. It also looks for Price to R&D ratios that are below 20x. more »
This screen implements the Magic Formula value investing strategy pioneered by hedge fund manager, Joel Greenblatt. It is based on buying 20-30 "good, cheap companies" defined as having the best available combined MFI ranking in terms of Earnings Yield and a Return on Capital. Greenblatt argues that return on capital is the best determinant of whether a business is a good one or not (companies that can earn a high ROC over time generally have a special advantage that keeps competition from destroying it, such as a unique business model). Earnings yield is his metric for 'cheapness'. Greenblatt believes that stock prices of a firm can experience “wild” swings even as the value of the company stays relatively constant giving investors opportunities to buy low and sell high. more »
