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.
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.