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Screening Strategies

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Dividend Dogs

Dividend Dogs of the FTSE is a high yield income strategy based on an approach devised by US investor Michael O'Higgins in his book Beating the Dow. It simply selects the 10 highest yielding stocks in a major market index like the FTSE 100, the S&P 500 or the FTSE Eurofirst 300. This version of the strategy uses the current, or historic, dividend yield. It's main safety net is that blue-chip stocks tend to be large, mature and well financed companies with long histories of weathering economic turmoil. O'Higgins wrote: "Beating the Dow is based on simple logic that will produce exceptional returns in any rational market and until excessive popularity turns contrarianism into conventional wisdom." O'Higgins suggested rebalancing the Dividend Dogs portfolio once per year, based on the highest yields available. more »

Income Investing
3 Year Return: 20.2%
James O'Shaugnessy's Cornerstone Value

James O'Shaughnessy Cornerstone Value is a value investing strategy presented by US fund manager James O'Shaughnessy in his 1996 book, What Works on Wall Street. His extensive backtesting found that value investing works particularly well with large capitalisation stocks with above average sales and cashflow, high levels of share liquidity, which were then sorted for the highest dividend yield. O'Shaughnessy said: "Generally speaking, when things are going against you, as they inevitably will, you have to stick to the underlying strategy? Only by doing so will you be around for when it comes rebounding back." He found that this value strategy produced an annual compound return of 15% between 1954 and 1996, compared to 8.3% for the S&P 500 index. O'Shaughnessy has continued to conduct detailed analysis of Standard & Poor's Compustat database to identify the most effective investing strategies. more »

Value Investing
3 Year Return: 19.8%
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
3 Year Return: 19.8%
Benjamin Graham Enterprising Investor Screen

Benjamin Graham Enterprising Investor is a deep value investing strategy based on rules suggested by legendary investor, Benjamin Graham, who wrote The Intelligent Investor. The strategy focuses on value stocks and the ability to buy them with a significant margin of safety. It uses valuation ratios including price-to-earnings and price-to-book but also looks for a history of earnings growth and dividend payouts. Ben Graham once said: "The determining trait of the enterprising investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average." Enterprising Investor is a less strict approach than Ben Graham's defensive strategies, which often focus on large, well financed and profitable companies. Instead, it looks for unpopular companies, special situations and 'bargain' issues. more »

Value Investing
3 Year Return: 17.4%
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
3 Year Return: 17.3%
Benjamin Graham NCAV Bargain Screen

Benjamin Graham NCAV Bargain is a deep value 'bargain' investing strategy based on rules suggested by legendary investor, Benjamin Graham, who wrote The Intelligent Investor. This is a simple value approach that looks for companies with a market capitalisation that is less than their net current asset value. NCAV is the calculation of current assets minus current liabilities. Ben Graham wrote: "You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." In a study by Henry Oppenhemier in the Financial Analysts Journal, the mean return from discounted net current asset stocks over a 13-year period was 29.4% per year versus 11.5% per year for the NYSE-AMEX Index. Ben Graham advocated buying stocks that, if they were to collapse tomorrow, should still produce a positive return because of the underlying asset backing. To reduce exposure to individual failures, he also looked for a margin of safety of about 33% and suggested diversifying between at least 30 stocks. more »

Bargain Stocks
3 Year Return: 17.1%
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
3 Year Return: 16.9%
Charles Kirkpatrick Bargain Screen

Charles Kirkpatrick Bargain is a rules based strategy inspired by US investment strategist Charles Kirkpatrick's work in his excellent Beat the Market. Kirkpatrick has established strategies for finding growth and value stocks. His bargain strategy concentrates on value and momentum factors, with a very precise requirement for the price to sales ratio. Kirkpatrick's testing of of relative price-to-sales ratio rankings found that it was most effective between the 17th and 42nd percentiles in terms of cheapness. Initial testing of the Bargain Model was promising but Kirkpatrick said that several more years of testing were needed before labeling it a success. Kirkpatrick wrote: "As a result of these studies of relative selection methods, I decided to create a new list, called the 'Bargain List' that would incorporate the best triggers found so far and would only include value and price strength." more »

Bargain Stocks
3 Year Return: 16.2%
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
3 Year Return: 15.7%
Muhlenkamp's ROE Screen

Ronald Muhlenkamp Return on Equity is a quality investing strategy based on an approach used by US fund manager Ronald Muhlenkamp. It combines quality and value factors by looking for companies with a high return on equity (ROE) at a reasonable price. ROE is a measure of how much profit a company earns compared to the amount of shareholder equity on its balance sheet. Muhlenkamp compares ROE with other growth measures to find stocks that are likely to be highly cash generative. He said: "You want to be sure that the companies you own can survive whatever the heck happens." Muhlenkamp's methods were analysed by Ludwig B Chincarini and Daehwan Kim in Quantitative Equity Portfolio Management. They found that the Muhlenkamp fund averaged an 18.38% annual rate of return for the 19 years to 2004, versus 12.07% for the S&P 500. more »

Quality Investing
3 Year Return: 14.3%
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
3 Year Return: 11.3%
Piotroski F-Score Price to Earnings Value Screen

The Piotroski F-Score P/E is a value strategy developed by the renowned finance professor Joseph Piotroski, published in a 2000 research paper titled "Value Investing: The use of historical financial statement information to separate winners from losers". The strategy hunts for the best quality shares amongst a deep value basket. In this version of the screen, the cheapest 20% of the market by their P/E ratio are selected, and filtered further for the highest scoring companies using a nine-point fundamental checklist called the Piotroski F-Score. Piotroski developed the system after observing that: "In that mix of bargain companies, you have some that are just stellar. Their performance turns around. People become optimistic about the stock, and it really takes off. However half of the firms languish; continue to perform poorly and eventually delist or enter bankruptcy." Piotroski's back-tests over 20 years showed that his formula could improve the returns from typical value investing strategies by at least 7.5% annually and is especially effective amongst small caps. Investors should beware the low liquidity shares in this screen can be expensive to trade. more »

Value Investing
3 Year Return: 10.3%
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
3 Year Return: 10.2%
John Neff Value Screen

John Neff Value is a value investing strategy based on the rules of successful US fund manager John Neff. It combines demanding value criteria with elements of growth, quality and dividend income. Although he didn't like the term, Neff was a contrarian investor buying good companies with moderate growth and high dividends while out of favour, and selling them once they rose to fair value. One of the tools used by Neff is the Total Return Ratio, which is calculated using the price-to-earnings growth factor (PEG), but adjusted for dividend yield - PEGY. John Neff wrote: "If you buy stocks when they are out of favor and unloved, and sell them into strength when other investors recognize their merits, you'll often go home with handsome gains." During his tenure as manager of Vanguard's Windsor Fund between 1964 and 1995, Neff's average annual total return was 13.7%. more »

Value Investing
3 Year Return: 10.2%
R&D Breakthroughs Screen

R&D Breakthroughs is a quality investing strategy inspired by a screen devised by US journalist Jack Hough, in his book, Your Next Great Stock. It is partly based on research by Louis Chan, Josef Lakonishok and Theodore Sougiannis in paper called The Stock Market Valuation of Research and Development Expenditures. The strategy filters a value screen with quality factors related to how much a company is investing in its future development. It uses the price-to-research ratio to find value and compares R&D investment in relation to growth, sales and assets. The strategy seeks to identify research-led businesses that are investing significantly in future development in order to try to identify their potential future growth before the market does. Louis Chan wrote: "The clearest evidence that high R&D plays a distinctive role arises from stocks with high R&D relative to the market value of equity. Their average return over the following three years is 6.12% per year." more »

Quality Investing
3 Year Return: 9.8%
Greenblatt's Magic Formula

The Magic Formula is a value investing strategy invented by the hedge fund manager Joel Greenblatt in the bestselling and highly recommended Little Book that Beats the Market. It focuses on finding quality value stocks using a blended ranking system (the Magic Formula rank) composed from two fundamental ratios: Return on Capital (which Greenblatt argues is the best determinant of whether a business is a good one) and Earnings Yield (his favoured measure for cheapness). He summarised his philosophy with the maxim "buying cheap stocks at bargain prices is the secret to making lots of money". In the fourth edition of his book Greenblatt claimed the top scoring portfolio of 30 stocks appreciated by 30.8% each year over the previous 17 years, though he stressed that the strategy could underperform during periods of up to two years. Having now sold hundreds of thousands of copies, the "Magic Formula" is credited for reinvigorating the practice of value investing. more »

Quality Investing
3 Year Return: 9.8%
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
3 Year Return: 8.6%
Peter Lynch Growth Screen

Peter Lynch Growth is a growth investing strategy inspired by the approach of former Fidelity fund manager Peter Lynch, who wrote One Up on Wall Street. It looks for consistently profitable, relatively unknown, low-debt, reasonably priced stocks with high, but not excessive, growth. Among the criteria used, the strategy looks for stocks with a low price to earnings growth rate (PEG). Peter Lynch wrote: "If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them." Lynch managed Fidelity's Magellan Fund between 1977 and 1990 and during the time racked up average annualised gains of close to 30%. He urged investors to adopt a bottom-up investing process and "buy what you know". more »

Growth Investing
3 Year Return: 6.6%
Benjamin Graham Net Nets Screen

Benjamin Graham Net Nets Bargain is a demanding deep value 'bargain' investing strategy based on rules suggested by legendary investor, Benjamin Graham, who wrote The Intelligent Investor. This value approach looks for stocks that are trading at such a cheap price that you could buy the whole company and sell off all the assets at a profit with near minimal risk. It does that by finding shares with a market capitalisation of less than net net working capital. The calculation makes allowances for the fact that in a fire sale of assets, only a proportion of owed cash and inventory value would be recovered. Ben Graham explained: "No proprietor or majority holder would think of selling what he owned at so ridiculously low a figure? In various ways practically all these bargain issues turned out to be profitable and the average annual result proved much more remunerative than most other investments." Remember, risky and potentially troubled companies will be found using the Net Net rules. Ben Graham suggested diversifying between at least 30 stocks. more »

Bargain Stocks
3 Year Return: 6.3%
T Rowe Price Screen

Thomas Rowe Price Jr Growth is a growth-at-a-reasonable-price investing strategy based on the approach of US fund manager Thomas Rowe Price, Jr. It combines growth and value rules, with a focus on improving earnings, margins and positive cashflow together with a reasonable price-to-earnings ratio. Rowe Price said: "A forward-looking investor must be able to reasonably assess and evaluate the currents and the tides and be prepared to reckon with winds or storms, which are unpredictable." A screen based on these rules tracked by the American Association of Individual Investors returned 22.6% in the five years to 2015. Rowe Price founded his own investment firm T.Rowe Price Associates in 1937, which today manages in excess of $730bn of assets. more »

Growth Investing
3 Year Return: 4.5%
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