GuruScreens - Upgrades & Downgrades - June 3rd

3rd Jun '14 by Alex Naamani

6 comments 17548 reads

We are initiating a regular column to provide a running commentary on stocks which have passed in and out of the popular ‘guru’ screens on Stockopedia. This column should constitute a starting point for further DIY research and enable investors to keep on top of changes to the stock screens.

Growth at a reasonable price with Produce Investments

A potato growing company called Produce Investments (PIL) has just qualified for the both the Zulu Principle and the Naked Trader screens. It exhibits the characteristics of a classic growth stock at a reasonable price, with respective trailing and forward P/E ratios of 5.8 and 7.1, despite the fact that earnings per share have grown by more than 1,300% this year. Sales have also grown by 25%, while earnings are expected to grow by another 16% over the next twelve months.

PIL’s cheapness could perhaps be attributed to weather related issues that affect potato price volatility. On the other hand, the company does meet Jim Sater’s qualitative criteria of offering ‘something new’, in this case, a new acquisition. On 16 May, PIL’s announced plans to acquire The Jersey Royal Company. Management insists that “Jersey Royals are a widely recognised brand in the UK”, and the takeover could strengthen the company’s product offering and broaden its consumer base.

Produce Investments (PIL) also meets another qualitative Zulu criteria, namely a positive outlook from the chairman. PIL’s interim report for H2 2013 noted that “the business continues to perform ahead of expectations, with integration plans completed ahead of schedule.” Management also insists that the company is “on track to meet market expectations for full year.”

The next CAN SLIM winners?

While the GARP screens filter for growth shares that are still cheap, the William O’Neil CAN SLIM screen filters for growing companies, regardless of their price, in the hope that growth persists and the share price continues to appreciate. Helical Bar (HLCL) and Provident Financial (PFG) have both qualified for the CAN SLIM screen. Helical is engaged in property investment. Its earnings grew by 795% last year. Provident is a sub-prime lender, which saw earnings grow by 11% over the same period.

Both stocks meet O’Neil’s qualitative criteria in that they could benefit from new industry trends.…

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sminers

4th Jun '14

Nice idea, I will keep an eye on this. Will it become a regular column or will it be in the strategies menu?

Alex Naamani

Hi, thanks for this. We will be producing a similar sort of article on a regular basis, probably every two weeks. Best, Alex

dasv

I think WINK meets the zulu screen criteria too.

Paul Scott

Alex,

Another excellent article, thanks!
Funnily enough, Produce Investments (LON:PIL) has come up on my radar recently, and I was discussing it with a successful investor friend over lunch, who is very keen on it.
My main reservation is that its activities are such that it's probably always going to be on a low PER rating, as a basic food producer lacks any excitement factor for investors, and you always worry about them being squeezed on price by supermarkets.

M Winkworth (LON:WINK) - the worry there is whether profits are sustainable, as it's heavily reliant on the London property bubble.

Nationwide Accident Repair Services (LON:NARS) - has a big pension deficit, always something to look out for, as they don't seem to be picked up in any of the screening metrics, but can be a huge drain on cashflow.

Camkids (LON:CAMK) - Chinese. Enough said!

Thanks again, and I shall look out for these articles on a regular basis, a very good theme I think for generating stock ideas for us to DOOR!

Regards, Paul.

5th Jun '14

Many thanks Paul,

I guess this brings us to the Hunter vs. Farmer debate.

The stock 'hunter' would of course point out the flaws you highlight above. On the other hand, the stock 'farmer' would argue that if you buy all the stocks that meet quality, value and momentum criteria, your investments should do well - in general.

Indeed, some 'dodgy' stocks do perform well, perhaps because the market is never 'perfect' and remains unable to exactly match a share price to its intrinsic value. Even Globo, despite the bear raid and poor cash flow, is still up 18% on last year.

Stock 'farmers' would therefore argue that seeking perfection in a stock leads to missed opportunities.

What do you think?

Alex

cig

I think the farmer vs. hunter issue is orthogonal to the methodological choice.

Different methods of course will sometimes disagree on what is good or not, but you can apply them all as broad or narrow as you want. Mechanical Bull has recently posted an example of Stocko's method applied the "hunter" way, with a ultra concentrated portfolio, and you could very well "farm" a Scott-100 portfolio (picking the 100 best stocks from Paul's universe, according to Paul's own criteria).

Farmer variants will typically have similar behaviour to their hunter methodological cousins, with tamed volatility (so doing less well in good times for the methodology, and less badly in bad times, with less exposure to one off exceptional single stock events, good or bad).

GuruScreens - upgrades & downgrades - June 3rd

Growth at a reasonable price with Produce Investments

The next CAN SLIM winners?

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Alex Naamani

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