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Screening Strategies

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Tiny Titans

James O'Shaughnessy Tiny Titans is a small-cap momentum investing strategy set out by US fund manager James O'Shaughnessy in his 1996 book, What Works on Wall Street. It combines momentum and value factors and focuses on stocks capitalised at greater than £15m but less than £150m. Its key measures include the price to sales ratio and 1-year relative strength. O'Shaughnessy wrote: "Studies are nearly unanimous in their findings that small stocks (those in the lowest two deciles) do significantly better than large ones. We too have found tremendous returns from tiny stocks." He found that this strategy produced an annual compound return of 20.05% between 1963 and 2009. In 2012, O'Shaughnessy updated the strategy rules by replacing price-to-sales as the key value metric with 6 composited value factors. more »

Momentum Investing
5 Year Return: 244.7%
William O'Neil CAN-SLIM-esque screen

The William O'Neil CAN-SLIM-esque strategy is a growth investing strategy inspired by a proprietary model devised and owned by US investor and publisher William O'Neill. It focuses on growth metrics but also has a momentum component to determine when stocks should be bought and sold. The 7-pronged formula focuses on Current Earnings, Annual Earnings, New Highs, Products or Management, Supply & Demand for the shares, Leaders over Laggards in a sector, Institutional Support and Market conditions. William O'Neill wrote: "What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower." Studies by the American Association of Individual Investors in the US have found that investing rules based on O'Neill's approach have been some of the most successful over the last decade. The so called 'CANSLIM' acronym is a registered trademark of Investors Business Daily, and the approach has become famous and well followed in the USA. more »

Growth Investing
5 Year Return: 235.0%
Growth at a Reasonable Price Screen

Growth at a Reasonable Price (GARP) is a strategy that aims to highlight companies that are growing but still reasonably priced by the market. It's an approach suggested by journalist and investor David Stevenson in his book, Smarter Stock Picking. It uses a combination of value, growth, quality and momentum measures. They include earnings-per-share growth, a below average price-to-earnings ratio, a high return on capital employed and a share price with positive relative strength. David Stevenson says: "At the core of GARP is is a simple desire: to benefit from a double whammy of growing earnings and a growing PE ratio that reflects this growth of earnings." more »

Growth Investing
5 Year Return: 223.2%
Bill Miller Contrarian Value Screen

Bill Miller Contrarian Value is a value investing strategy based on the style of US fund manager, Bill Miller. It uses value and growth factors to find stocks that are trading below their intrinsic value but are capable of rebounding. This model of Miller's contrarian approach uses price-to-free cash flow as a valuation measure but also looks at the price-to-earning growth factor (PEG) as well as sales and free cash flow growth. Miller wrote: "We are value investors because we are persuaded of the logic of buying shares of businesses when others want to sell them, and we understand that lower prices today mean higher future rates of return, and high prices today mean lower future rates of return." Between 1991 and 2005 Miller cemented his legendary reputation by guiding the Legg Mason Value Trust to a record 15 consecutive years of beating the S&P 500. more »

Value Investing
5 Year Return: 209.1%
Jim Slater ZULU Principle Screen

Jim Slater Zulu Principle is a growth investing strategy inspired by UK investor Jim Slater in his book, The Zulu Principle. The strategy combines growth, value, quality and momentum factors. Its most famous ratio is the price-earnings-growth factor (PEG) which compares a company's forecast price-to-earnings ratio with its forecast earnings-per-share growth rate. It also looks for a high return on capital employed and positive relative price strength in small and mid-cap shares. Jim Slater wrote: "Most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain in this relatively under-exploited area of the stock market." Jim Slater's son Mark Slater uses Zulu Principle-inspired rules at his MFM Slater Growth Fund, which achieved a total return of 61% over the three years to November 2014. Jim Slater is one of the UK's most popular home-grown investors and his strategy is well followed. more »

Growth Investing
5 Year Return: 191.5%
Charles Kirkpatrick Growth Screen

Charles Kirkpatrick Growth is a strategy pioneered by Charles Kirkpatrick, the renowned US investment strategist who wrote Beat the Market & many books on technical analysis. It combines relative growth and momentum factors in large capitalisation stocks. Specifically it looks for the top 20% of shares with the strongest share price vs 130-day Moving Average and then the top 10% with the strongest growth in operating profit. Kirkpatrick reinforced his strategy by studying point-and-figure charts to determine whether a stock was in an uptrend, which helped to guide his trading decisions. In an award winning paper by Kirkpatrick, entitled Stock Selection: A Test of Relative Stock Values Reported over 17 ½ Years, he wrote: "Relative price strength and relative reported earnings growth, when calculated in the manner of this study, showed superior results when compared to market averages." In Beat the Market, Kirkpatrick claimed that his stock-picking technique had outperformed the S&P 500's performance by 7.7x over 25 years. more »

Growth Investing
5 Year Return: 191.1%
Value Momentum Screen

Value & Momentum is a strategy that aims to find undervalued stocks with positive price momentum. It is inspired by research by AQR Capital Management as well as the American Association of Individual Investors' "Value on the Move" screen and Jack Hough's "Impatient Value" screen in his book, Your Next Great Stock. The strategy combines value and momentum, which are two disciplines that have been found to work very effectively when combined. It looks for a reasonably low PEG, positive relative strength and a share price within 10% of its 52-week high in companies with sales of more than £100 million. Value and momentum not only provide strong returns but are also negatively correlated. That means that when when one strategy works well, the other lags - one zigs when the other zags. Over time, this helps to create a smoother profit line, as the volatility of each strategy cancels the other out. more »

Momentum Investing
5 Year Return: 185.7%
Winning Growth & Income

Winning Growth & Income is a dividend investing strategy inspired by an approach used by American investment analyst Kevin Matras in his book, Finding #1 Stocks. It combines growth and dividend factors by sorting the market for high yielding companies with strong growth characteristics. Apart from a high yield, this strategy looks for companies with an above average return on equity, a below average price-to-earnings ratio and where analysts have been upgrading their earnings forecasts. It also looks for companies with a low beta (the sensitivity of a share price to the movement of the market). Kevin Matras says the screen works for investors that are "looking for good companies with solid revenues that pay a good dividend". In some respects, this strategy is a small cap version of the Large Cap Dividend Attraction strategy. In Matra's original strategy criteria he uses Zacks Rank, which is a metric for analysing analyst forecasts. more »

Income Investing
5 Year Return: 182.0%
Naked Trader-esque Screen

Robbie Burns Naked Trader is a growth investing strategy based on the rules set out by Robbie Burns in his book, The Naked Trader: How Anyone Can Make Money Trading Shares. It uses a wide range of measures spanning growth, value and price momentum factors and focuses on small and mid-cap stocks. Burns also uses a number of non-financial, qualitative criteria in his investment analysis. He says: "I look at everything I can, and much of the research involves trying to pick out the negative things - I guess I'm trying to put myself off! I use every scrap of info I have to come to a decision - and so should you." Between 2002 and 2005, Burns wrote a column for the Sunday Times, 'My DIY Pension', and apparently doubled the money from £40,000 to £80,000 over this period. By mid-2011 he had turned this into £250,000. more »

Growth Investing
5 Year Return: 173.6%
James Montier Trinity of Risk Screen

James Montier Trinity of Risk is a short selling strategy that uses rules suggested by economist and equity strategist James Montier, who wrote Value Investing. He based the approach on three risk factors highlighted by value investor Benjamin Graham: Valuation Risk, Earnings Risk and Financial Risk. It identifies companies that could be overvalued, have poor quality earnings and might be financially distressed. Specifically it uses the Graham & Dodd price-to-earnings ratio and looks for companies that are reporting exceptionally high earnings growth but fail the Altman Z Score of balance sheet risk. James Montier wrote: "Risk isn't a number, it is a concept or a notion? Rather than running around obsessing on the pseudoscience of risk management, investors should concentrate on understanding the nature of this trinity of risks." Short selling shares can be very risky but the Trinity of Risk can still be used as an indicator of which stocks should be avoided. more »

Short Selling
5 Year Return: 159.9%
Josef Lakonishok Momentum Screen

Josef Lakonishok Momentum is a strategy that uses price and earnings momentum to identify undervalued companies just at the point when the market is starting to recognise them. It is inspired by detailed research by academic and fund manager Josef Lakonishok, who co-wrote the paper Contrarian Investment, Extrapolation, and Risk. The strategy combines value and momentum factors, including the price-to-earnings ratio, relative strength and earnings surprises. Lakonishok wrote: "Regardless of the reason, some investors get overly excited about stocks that have done very well in the past and buy them up, so that these 'glamour' stocks become overpriced. Similarly, they overreact to stocks that have done very badly, oversell them, and these out-of-favour 'value' stocks become underpriced." A Lakonishok-inspired strategy tracked by the American Association of Individual Investors returned 13.9% in the 10 years to the end of 2014, versus 5.4% for the S&P 500. more »

Momentum Investing
5 Year Return: 144.6%
Earnings Surprise Screen

Earnings Surprise Momentum is a momentum investing strategy that was identified in research by academics Narasimhan Jegadeesh and Joshua Livnat in their paper, Revenue Surprises and Stock Returns. It specifically looks for companies that managed to significantly beat earnings and sales forecasts in their previous financial results. These 'earnings surprises' have been found to cause medium term increases in share prices. This is believed to be caused by analysts being slow to revise their forecasts and the market failing to adequately 'price-in' the better than expected results. Jegadeesh and Livnat found that the the top 20% of stocks in terms of upside earnings and sales surprises outperformed the market by 5.3%. They wrote: "Although analysts revise their forecasts of future earnings in response to revenue surprises, they are slow to incorporate fully the information in revenue surprises." more »

Momentum Investing
5 Year Return: 132.9%
Free Cash Flow Cows Screen

Free Cash Flow Cows is a deep value bargain strategy inspired by the investment writer, Jae Jun at Old School Value. It looks for companies that appear to be cheaply priced compared to the amount of free cash flow they generate. In particular, they should be stable, cash rich companies where free cash flow is actually growing. Among the ratios used in this strategy is Enterprise Value to Free Cash Flow and Free Cash Flow to Long Term Debt. Jae Jun says: "When it comes to true profitability, forget earnings and EBITDA. Free Cashflow is by far the best number to refer to." Jae Jun's backtesting of his own FCF Cows screen found that it beat the S&P 500 in six out of nine years between 2001 and 2009. more »

Bargain Stocks
5 Year Return: 127.3%
Richard Beddard's Nifty Thrifty Screen

Richard Beddard Nifty Thrifty is an investing strategy based on the approach of UK investor and journalist, Richard Beddard of Interactive Investor. It combines quality and value factors using Joel Greenblatt's Magic Formula and Joseph Piotroski's F-Score. The Magic Formula ranks stocks for value and quality using the earnings yield and return on capital as its key metrics. The F-Score is a 9-point checklist of financial health, of which stocks qualifying for this strategy must pass at least 5. Beddard said: "I don't really see how you can be an investor if you're not trying to understand businesses; how they make money, and what makes them go bust." Between June 2010 and December 2014, Beddard's own Nifty Thrifty portfolio had returned 47%. more »

Value Investing
5 Year Return: 127.3%
Best Dividends Screen

Best Dividends is an income strategy inspired by research into high yield investing by the American Association of Individual Investors. It is based on the premise that a stock's dividend yield will rise if its share price falls. The screen aims to identify which of these value shares is best placed to bounce back in price and be able to sustain dividend payouts. To do this it looks for a 5-year average yield of more than 5%, a track record of dividend growth and a conservative dividend payout ratio. It's an approach that echoes David Dreman's High Dividend value strategy. Dreman found that between 1970 and 2010 high yield stocks beat the market by nearly 1% and outperformed no or low yield stocks by 4%. more »

Income Investing
5 Year Return: 125.7%
Dreman Low Price to Cash Flow Screen

David Dreman Low Price to Cashflow is a contrarian value strategy developed by the famous US investment manager and author David Dreman in his book Contrarian Investment Strategies. It uses a basic value filter of selecting the cheapest 40% of the market by Price to Cashflow ratio and filtering further for quality according to company size, financial strength and growth. Dreman favours cash flow over earnings: "If we take two companies with similar outlooks, markets, products, and management talent, the one with the higher cashflow will usually be the more rewarding stock. In investing, as in your personal finances, cash is king." Dreman's studies showed that the cheapest 20% of the market by P/CF outperformed the most expensive 20% by 6.8% annually. Dreman cautions towards a buy and hold approach because "transaction costs are often not recognized by investors, but can be very expensive". more »

Value Investing
5 Year Return: 120.0%
Price Momentum Screen

Price Momentum is a momentum investing strategy first credited to research by academics Narasimhan Jegadeesh and Sheridan Titman in their paper, Returns to buying winners and selling losers. As its core measure it looks for the top 25% of stocks in the market ranked by their relative price strength over six and 12 months. Research into momentum strategies has shown that previously winning stocks have a tendency to keep rising in price over the medium term, while previous losers tend to keep falling. Academics and professionals have credited this anomaly to investors being slow to absorb the implications of positive news about stocks, which causes prices to drift up over time. In their 1993 paper, Jegadeesh and Titman wrote: "The strategy we examine in most detail, which selects stocks based on their past 6-month returns and holds them for 6 months, realises a compounded excess return of 12.01% per year on average." more »

Momentum Investing
5 Year Return: 119.8%
James O'Shaugnessy Cornerstone Growth

James O'Shaughnessy Cornerstone Growth is a growth investing strategy devised by US fund manager James O'Shaughnessy in his 1996 book, What Works on Wall Street. It combines value, momentum and growth factors, using the price-to-sales ratio, price momentum and earnings growth as its main rules. O'Shaughnessy wrote: "Marrying good value characteristics with price momentum is an excellent way to find 'cheap stocks on the mend'." He found that this strategy produced an annual compound return of 17% between 1963 and 2009. In 2012, O'Shaugnessy updated the strategy rules by replacing price-to-sales as the key value metric with 6 composited value factors. more »

Growth Investing
5 Year Return: 113.8%
Martin Zweig Growth Screen

Martin Zweig Growth is a growth at a reasonable price investing strategy based on an approach explained by US investor Martin Zweig in his book, Winning on Wall Street. It combines a focus on growth characteristics, value attraction and market timing. It uses various measures of earnings and sales growth and uses the price-to-earnings ratio as a valuation tool. Zweig's strategy also looks for relatively strong price action. Zweig wrote: "I've found that investors who rely on crystal balls frequently wind up with crushed glass. I'm satisfied if I can predict a market trend, get in tune with it and stay with that trend for as long as it lasts." Zweig was a reputed US money manager back during 1990s as well as an investment newsletter writer. During the 15 years that it was monitored (1980 - 1995), his newsletter returned an average of 15.9% per year. more »

Growth Investing
5 Year Return: 113.0%
The Screen of Screens

The Screen of Screens is a blended investment approach devised by Stockopedia. It picks stocks that are appearing most frequently across all the 'Guru Screens' tracked by Stockopedia - be they quality, value, momentum, growth or income (excluding short-selling strategies). A stock must be appearing on at least four strategies before it can qualify for the Screen of Screens. Ed Page Croft, CEO of Stockopedia, says: ?One benefit of a blended approach such as the Screen of Screens is that it builds a portfolio exposed to many driving factors of stock returns at once.? By definition, this strategy tends to highlight a list of relatively defensive stocks because they exhibit good fundamentals across a wide range of investing disciplines. The strategy was highlighted in an Financial Times feature by David Stevenson titled: "Stock screens to net the ones that get away". In it he said: "You need to use a website or system that can run the screens for you, and then identify the stocks that come up most often in each of them, which is exactly what Stockopedia has done." more »

Quality Investing
5 Year Return: 109.5%
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