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Screening Strategies

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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
6 Month Return: 6.1%
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
6 Month Return: 5.6%
Benjamin Graham Deep Value Checklist

Benjamin Graham Deep Value Checklist is a value investing strategy based on rules suggested by legendary investor, Benjamin Graham, who wrote The Intelligent Investor. The strategy focuses on building portfolios of both large and small value stocks. It involves a 10-point checklist of valuation ratios and financial measures. Ben Graham regarded the most important of those measures to be earnings yield, dividend yield and for total debt to be less than book value. Ben Graham wrote: "Try to buy groups of stocks that meet some simple criterion for being undervalued - regardless of the industry and with very little attention to the individual company. It seems too good to be true, but all I can tell you after 60 years of experience, it seems to stand up under any of the tests I would make up." Societe Generale backtested the strategy to 1992 and found that the group of stocks scoring 9 and 10 on the list returned 37.1% and 48.7% per year respectively. Ben Graham devised the Deep Value Checklist late in his life as a much more systematic approach than his other value investing strategies. more »

6 Month Return: 5.2%
Altman Z-Score Screen

The Altman Z-Score is a checklist for identifying stocks that might be at risk of bankruptcy. It was created by US finance Professor Edward Altman and detailed in a book he co-authored, called Managing Credit Risk. The Z-Score is a red flag indicator that can be used as a short selling strategy. It analyses five weighted business ratios to estimate the likelihood of financial distress. Broadly, these checks examine a company's asset, strength, profitability, solvency, efficiency and ability to generate earnings. Altman wrote: "The detection of company operating and financial difficulties is a subject which has been particularly amenable to analysis with financial ratios." Tests over 31 years to 1999 found the Z-Score to be 80-90% accurate in predicting bankruptcy one year prior to the event. The Z-Score is one of the components used in another short selling strategy: James Montier Trinity of Risk. more »

Short Selling
6 Month Return: 5.2%
Earnings Upgrade Momentum Screen

Earnings Forecast Upgrades is a momentum strategy set out by US academics Phillip McKnight and Steven Todd in research that examined how analyst forecasts affect share prices. It focuses on finding momentum stocks by highlighting those that are receiving the highest levels of upgraded earnings forecasts from analysts. It looks at both the number of analysts that have raised their forecasts on a share over the past month, and the overall percentage earnings-per-share increase among the consensus of analysts. McKnight and Todd claimed: "Stocks with the greatest number of upwards revisions in earnings, net of downward revisions, earn significantly higher returns than otherwise similar stocks." The researchers examined a portfolio of European shares and found that the 20% with the highest net upward revisions outperformed the lowest 20% by over 16% a year. Earnings upgrades are one way of finding stocks with 'earnings momentum'; those that have received upward earnings revisions are likely to do so again in the future. more »

Momentum Investing
6 Month Return: 4.9%
Warren Buffett - Hagstrom Screen

Warren Buffett - Hagstrom is a quality investing strategy inspired by modelling of Warren Buffett's investment approach in books by investment strategist Robert Hagstrom, including The Warren Buffett Way. It is a strategy that combines Buffett's focus on value and business quality. It uses price-to-free cash flow as a valuation measure and assesses quality using operating profit and return on equity. In his book, Robert Hagstrom explains: "Your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understood business whose earnings are virtually certain to be materially higher, five, ten, and twenty years from now." Remember, Buffett is famous for looking beyond financial measures when examining the quality of a business franchise. more »

Quality Investing
6 Month Return: 4.6%
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
6 Month Return: 4.5%
Richard Driehaus Screen

Richard Driehaus Momentum is a momentum investing strategy inspired by an approach used by US investor Richard Driehaus. It combines a focus on price and earnings momentum in small and mid-cap companies with strong, sustained earnings growth. Importantly, Driehaus wanted to find companies that had produced significant earnings surprises over the previous year by beating analyst forecasts. Driehaus said: "I would much rather invest in a stock that's increasing in price and take the risk that it may begin to decline than invest in a stock that's already in a decline and try to guess when it will turn around." Driehaus's fund management firm Driehaus Capital Management was reported to have delivered compound annual returns of 30% during the 12 years after it was started in 1980. Driehaus was named in Barron's "All-Century" team of the 25 most influential and powerful mutual fund managers in 2000. more »

Momentum Investing
6 Month Return: 4.2%
Quality Income Screen

Quality Income is a dividend strategy focused on firms with strong fundamentals and high yields, based on research by Societe Generale. It looks for quality income stocks using checklists for identifying strong financial health, low bankruptcy risk and high, but not excessive, yields. Specifically, firms must be capitalised at more than £800 million, have a Piotroski F-Score of more than 7 out of 9 and a strong Altman Z-Score. Yields are capped at 15% to avoid potential dividend traps.The SocGen team explains: "As a real asset class, we think Quality Income is an attractive alternative to anyone buying credit thinking that’s the only way to generate a high yield." SocGen found that quality income stocks produced standout total returns that averaged 11.6% per year since between 1990 and 2012, more than doubling the return of the global equity markets but with significantly reduced volatility. more »

Income Investing
6 Month Return: 4.1%
Piotroski High F-Score Screen

The Piotroski F-Score Screen is a quality strategy outlined by the famed academic Professor Joseph Piotroski and investigated further in a 2011 paper titled "Identifying expectation errors in Value/Glamour stocks". The strategy hunts for the best quality shares in the market regardless of price. In this version of the screen we have selected the highest scoring stocks in the market using Piotroski's nine-point fundamental checklist called the F-Score. While the F-Score was originally used only for filtering value stocks, Piotroski discovered it was just as effective for filtering glamour stocks: "Firms experiencing the strongest improvement in fundamentals (FSCORE ?7) generate a mean size-adjusted return of 5.5 percent annually". What Piotroski essentially was saying was that the highest scoring stocks returned 5.5% more than the market - these findings have been backed up by independent research by Societe Generale. Perhaps as a result the F-Score has become extremely popular with investors and is a core component of the Stockopedia StockReports. more »

Quality Investing
6 Month Return: 4.1%
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
6 Month Return: 3.7%
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
6 Month Return: 3.6%
Buffettology-esque Historical Growth Screen

Warren Buffett Historical Growth is a quality investing strategy inspired by an interpretation of Warren Buffett's investment approach by Mary Buffett and David Clark in their book, The New Buffettology. It is a strategy that combines Buffett's focus on value and business quality. To work out whether the stock is reasonably valued, the strategy uses historical earnings growth; the higher that growth rate is, the more likely it is that the company has a durable competitive advantage. The strategy also looks for low debt and a high earnings yield, return on equity and return on capital employed. In The New Buffettology, Mary Buffett and David Clark explain: "Historical per share earnings that are both strong and show an upward trend indicate a durable competitive advantage." Remember, Buffett is famous for looking beyond financial measures when examining the quality of a business franchise. more »

Quality Investing
6 Month Return: 3.6%
52 Week High Momentum Screen

52 Week High Momentum is momentum strategy that was explored in a paper called The 52-Week High and Momentum Investing by academics Thomas George and Chuan-Yang Hwang. It capitalises on the positive momentum effect which appears to cause stocks that are at, or close to, their 52 week high prices continuing to outperform. It is believed to work because investors tend to under-react to positive news about previously successful stocks and are reluctant to bid their prices higher, even if the positive news warrants it. When the full impact of the information prevails, and the 52 week high is broken, the market "wakes up" and prices see further gains. George and Hwang wrote: "Our results indicate that the 52-week measure has predictive power whether or not individual stocks have had extreme past returns. This suggests that price level is important, and is consistent with an anchor-and-adjust bias." The original research found that, between 1963 - 2001, the average monthly gain to this strategy assuming a 6 month hold was 0.45% - "about twice as large as those associated with other momentum strategies". more »

Momentum Investing
6 Month Return: 3.6%
Buffettology-esque Sustainable Growth Screen

Warren Buffett Sustainable Growth is a quality investing strategy inspired by an interpretation of Warren Buffett's investment approach by Mary Buffett and David Clark in their book, The New Buffettology. It is a strategy that combines Buffett's focus on value and business quality. To work out whether the stock is reasonably valued, the strategy forecasts sustainable earnings growth; the higher that growth rate is, the more likely it is that the company has a durable competitive advantage. The strategy also looks for low debt and a growing earnings yield, return on equity and return on capital employed. In The New Buffettology, Mary Buffett and David Clark explain: "Consistency is everything. Warren is not after a company that occasionally has high returns on shareholders' equity, but one that consistently earns high returns." Remember, Buffett is famous for looking beyond financial measures when examining the quality of a business franchise. more »

Quality Investing
6 Month Return: 3.4%
John Templeton Bargain Screen

John Templeton Value is a value investing strategy based on the rules used by US investor Sir John Templeton. It combines value and growth factors to identify stocks trading at cheap prices but with a positive long-term outlook. The value components include the price-to-book and price-to-earnings ratios, while the growth rules focus on strong earnings and margins, and low debt. Sir John wrote: "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." His Templeton Growth Fund delivered a 13.8% annualised return from 1954 to 2004, versus 11.1% by the S&P 500 over the same period. Sir John also put a great deal of importance on qualitative factors, such as quality products, cost controls, and the intelligent use of earnings by management. more »

Value Investing
6 Month Return: 1.5%
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
6 Month Return: 1.4%
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
6 Month Return: -0.0%
Cash Accruals Screen

Cash Accruals is a quality investing strategy inspired by research into the 'accrual anomaly' by American accounting professor Richard Sloan. In company accounts, accruals are adjustments made when revenues have been booked but cash has not yet been received. This screen uses low levels of accruals as a positive quality signal. It looks for companies with a low accrual ratio, where free cash flow is higher than net income and where earnings-per-share is growing. Professor Sloan's research found that: "...firms with relatively high levels of accruals experience negative future abnormal stock returns that are concentrated around future earnings announcements." The research found that companies with small or negative accruals vastly outperform (+10%) those with large accruals. It concluded that investors focus too heavily on earnings and not on cash generation and that the share prices of companies with high accruals are more likely to reverse in future years. more »

Quality Investing
6 Month Return: -0.4%
Large Cap Dividend Attraction Screen

Large Cap Dividend Attraction is an income strategy discussed by Kevin Matras in his book, Finding Number 1 Stocks. It focuses on dividends paid by strong, large-cap companies with long track records of both earnings and dividend growth and where analysts are upgrading their earnings forecasts. This version of the strategy assesses 5-year dividend growth, Return on Equity, earnings per share growth and Price to Operating Cashflow. It also look for the highest percentage EPS upgrades over the past three months for the next financial year. Kevin Matras explains: "Larger companies with solid earnings, but without the aggressive growth rates that may have marked their earlier years, will often reward their investors by paying out a portion of their earnings as dividends." more »

Income Investing
6 Month Return: -1.2%
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