Seeking safe value

Thursday, Nov 22 2012 by

I have been playing around with Stockopedia's excellent filtering to try to find some safe value shares. I am more a growth/momentum investor and am not hugely comfortable in the value arena. Why? Because growth opportunities and momentum plays are easier to spot [for me] and value can be rather subjective.

Anyway, I set about thinking how about I might find value.

I started with Piotroski's idea of scoring stocks according to a set of accounting values and then picking those with low price to book value and a high score. Stockopedia has a screen for this and it currently has 17 shares on it. That's about 12 too many for me.

What next? Well, Altman came up with a checklist that attempts to filter out the chances of bankruptcy. I added Z score of greater than 1.8, his cut-off for financial distress.

I then decided to look for companies that have a low p/e, pay a dividend, have 2x both interest cover and dividend cover. Just to make sure the dividend part of the screen doesn't deceive, I look for a dividend growth streak of at least 1. Interest cover is a passing attempt to make sure any debt payments are covered. I don't screen for debt because it's difficult to screen good debt vs bad debt. Good debt is used to move the company forward; bad debt to save its skin!

A Market Cap £25m cut-off gets rid of likely illiquid stocks with wide spreads.

I still had too many stocks.

I added Beneish M score of less than -1.75. The idea is to filter out stocks that might be subject to a bit of creative accounting.

Lastly, I look for someone else to agree with the filter's analysis. I'm not a great believer in broker forecasts but that's what's on offer. So I look for at least one broker forecast, at least one outperform and the current price trading at least 5% below the broker price target.

Right now the filter throws up:

Cohort (LON:CHRT) (I hold) is a buy on the chart, Fenner (LON:FENR) is just off the bottom of a channel and could be good to the 400-420 area and Rank (LON:RNK) looks like a buy signal may just be around the corner.

The warning is that in an econonic downturn what is cheap can get cheaper but with sensible trading plan there might be worse stocks to trade/hold.

Filed Under: Screening, Value Investing,


Please keep in mind that all comments made by Susan Marmor are for educational purposes only and should not be construed as investment advice regarding the purchase or sale of securities, options, futures or any other financial instrument of any kind. Consult with your investment advisor before making an investment decision regarding any securities mentioned herein. Susan Marmor assumes no responsibility for your trading and investment results. Susan Marmor does not warrant completeness or accuracy for any observations made herein, or warrant any results from the use of the information. Susan Marmor may have a position in the securities and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. There is a very high degree of risk involved in any type of trading. Past results are not indicative of future returns. Securities, options, futures and any other financial instruments can go down as well as plunge.

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Cohort plc is a United Kingdom-based holding company. The Company is an independent technology group that serves defense (air, land and sea), government and industry clients, through four subsidiaries: MASS Consultants Limited (MASS), Marlborough Communications (Holdings) Limited (MCL), Systems Consultants Services Limited (SCS) and SEA (Group) Limited (SEA). MASS focusses on electronic warfare operational support and secure information systems. MCL is engaged in sourcing, design and integration of electronic and surveillance technology, as well as field support and training. SCS operates a defense technical advisory business. SEA provides advanced surveillance systems and software with hardware development capability operating in the defense, transport and offshore energy market sectors. more »

Share Price (AIM)
0.0  0.0%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

Fenner PLC is a United Kingdom-based manufacturer and distributor of reinforced polymer products providing local engineered solutions for performance-critical applications. The Company operates in two segments: Engineered Conveyor Solutions and Advanced Engineered Products. Engineered Conveyor Solutions is engaged in the manufacture of rubber ply, solid woven and steel cord conveyor belting for mining, power generation and industrial applications. It also offers service operations which design, install, monitor, maintain and operate conveyor systems for mining and industrial customers. The Advanced Engineered Products segment manufactures precision polymer products, including precision drives, power transmission and motion transfer components, silicone and complex hoses, lay-flat hoses, seals and sealing solutions, technical textiles, silicone-based products, rollers and fluropolymer components. more »

Share Price (Full)
1.5  0.8%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

The Rank Group Plc (Rank) is a United Kingdom-based gaming-based entertainment company. The Company is engaged in operating gaming and betting services in Great Britain, Spain and Belgium and provides business services to gaming operators. Great Britain generates approximately 94% of Company’s revenue. It has a total of 152 venues in Great Britain and its online bingo and casino operations are licensed out of Alderney. Belgium is an established gambling market. Rank operates two casino venues in Middelkerke and Blankenberge. Enracha is the bingo operator in Spain with ten community gaming-based entertainment venues in Catalonia, Madrid, Andalucía and Galicia. The Company’s brands include Grosvenor Casinos, Mecca and Enracha. The Company’s three long-standing focus areas include Systematic use of data and customer feedback; Capital investment, and Multi-channel distribution of its brands. more »

Share Price (Full)
3.9  2.1%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

  Is Cohort fundamentally strong or weak? Find out More »

9 Posts on this Thread show/hide all

Edward Croft 22nd Nov '12 1 of 9

This looks an excellent set of criteria - I can't question any of the criteria. It would be great if you could post a link to the screen page - as other subscribers will be able to watch the list over time. By the way we are considering adding the ability to 'publish' screens and track their performance over time in the same way we do for our premium models. Let me know if you'd appreciate that feature. We'll also be adding the ability to 'watch' different screens more formally so that investors can be notified of new qualifying stocks more promptly.

The fascinating thing about screening for value stocks is that sometimes its the most unusual stocks in a basket that do the best - it's often the oversold stocks that nobody wants to look at that actually bring the lions share of the reward. Joel Greenblatt found that investors who picked stocks from his lists of 30 magic formula stocks underperformed because they picked the wrong ones - the safe ones ! Of course if you have a highly concentrated portfolio, you can't find safety in numbers, you need to have high conviction that each stock won't disappoint - in that scenario it's definitely vital to weed out the danger stocks.

I'm going to take a closer look at these companies - I noticed that Fenner is also qualifying for our Naked Trader screen - which I believe is a strategy you have followed too?

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smarm 23rd Nov '12 2 of 9

Hi Ed,

Happy to post a link, although I thought the screens were private and beyond prying eyes.

The biggest problem with filters is the lack of backtesting. What would be really useful is the ability to run the filter on a specific dataset e.g. Finals December 2005. All that is required is the set of stocks a filter might have produced for the dataset, together with a price on the final day of the month. The user could then manually work out what to do with all the changes in ownership and get an idea of performance. I accept that running on specific dataset limits the shares that would be thrown out but I can't think of an 'easy' way to do it. What do you think?

I like the idea of forward testing but would prefer to keep my filters and their performance 'close' until they are proven to work. I guess that means a 2/3 year lag from when you make the facility available but it would surely be worth it in the end.

Cherry-picking a system or filter will almost always lead to disappointment so I aim to reduce any filter to a few picks and then buy when the chart tells me the time is right.

Sorry I missed you at Olympia show....


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Murakami 23rd Nov '12 4 of 9

Hi, we're definitely agreed re: the need for back-testing. This is something we're working on. What I would say is that it's easy to do badly, in which case the results are worse than useless, i.e. misleading because of issues like look-ahead bias and survivorship bias. It can give the impression that a strategy is wonderful, but in practice, it will never reflect the back-tested results. That's why we only use live performance tracking for the screens:

Doing backtesting properly is extremely hard, not least because database schemae change over time, and the only applications I'd trust are all institutional sources at present. We do want to make it more widely available but only once all of those kinds of issues are properly scrubbed.

In general, if you'd like to see something added to PRO, the best thing is to suggest it here (or via the Green Button), as that's the list we're monitoring - I've now added that suggestion (although it's already high on our internal dev list):

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smarm 28th Nov '12 5 of 9

In reply to Murakami, post #4

That's great, thanks.

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smarm 28th Nov '12 6 of 9

Euromoney Institutional Investor (LON:ERM) has popped up on the filter. Hmmmmm. The recent results were encouraging and that has seen the price bounce a little but the chart is saying NO WAY. I guess it goes on the watchlist for a good chart entry....

We wait.


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Susan Marmor 3rd Dec '12 7 of 9

Euromoney Institutional Investor (LON:ERM) has dropped out of the filter becasue the P/E is no longer less than median. So what the filter is telling me is that ERM is no longer 'cheap' according to my metrics. The price is up since last I score that a win for the filter.

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Susan Marmor 13th Dec '12 8 of 9

CHRT Statement today seems solid enough. So far FENR and CHRT have moved nicely and RNK remains a sell on the chart and one to watch. The filter remains a work in progress; I will continue to update.

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jdo 21st Mar '13 9 of 9

Nice screen idea. I see CHRT has been slipping back recently. Now qualifies for 7 screens including NT screen. I'm a bit surprised Robbie hasn't flagged this one up, seems like the kind of stock he would like.
Looks good to me.

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