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Screening Strategies

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Dividend Achievers Screen

Dividend Achievers is an income strategy inspired by an index run by Nasdaq OMX. It looks for companies that have grown their cash dividend payouts for at least the past five consecutive years. Apart from the dividend growth streak, this strategy looks for companies with reasonable share trading liquidity, strong cash reserves, a solid balance sheet and a proven record of consistent earnings growth. In his book Beating the Street, investing legend Peter Lynch, said: "The dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 to 20 years in a row." According to M&G Investments, the total cumulative return from the S&P 500 in the 10 years to 2011, with dividends reinvested, was 32%. But the return soared to 136% by investing solely in US companies that had grown their dividends for at least 25 consecutive years. more »

Income Investing
5 Year Return: 108.8%
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
5 Year Return: 100.7%
Piotroski F-Score Price to Book Value Screen

The Piotroski F-Score P/B is the classic value strategy by famous finance academic Joseph Piotroski. Originally 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 highest quality shares amongst a deep value basket. In this version of the screen, the cheapest 20% of the market by their Price to Book ratio are first selected, and filtered further to find those with the most improving fundamental health trends using the Piotroski F-Score. Piotroski developed the F-Score 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
5 Year Return: 90.6%
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
5 Year Return: 90.5%
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
5 Year Return: 89.4%
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
5 Year Return: 88.1%
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
5 Year Return: 87.0%
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
5 Year Return: 86.1%
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
5 Year Return: 83.5%
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
5 Year Return: 81.2%
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
5 Year Return: 80.9%
Kenneth Fisher Price to Sales Screen

Kenneth Fisher Value is a value investing strategy based on the approach of US investor Kenneth Fisher, who wrote Super Stocks. The strategy aims to find value stocks but also considers some of the growth factors that were suggested by Ken Fisher's father, Philip Fisher. It looks specifically for stocks that appear undervalued based on the price-to-sales ratio. It also looks for low gearing, a history of earning growth, strong net margins and positive free cash flow. Ken Fisher wrote: "Very few investors have a rational basis for valuing growth stocks in the face of a lack of earnings. The stock loses supporters and falls, in time, much too far. The best managements react to difficulties and overcome them. In time, sales pick up. Later, profits begin to pick up. Simultaneously with the profit resurgence, the stock price begins to rebound." Latterly, Ken Fisher has suggested that the price-to-sales ratio has become less effective for identifying undervalued shares, however it continues to be widely used by investors. more »

Value Investing
5 Year Return: 80.6%
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
5 Year Return: 80.4%
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
5 Year Return: 79.3%
David Dreman Low PE Screen

David Dreman Low Price to Equity is a value strategy developed by the renowned US fund 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 P/E ratio and filtering further for quality according to company size, financial strength and growth. Dreman favoured the P/E strategy above all others: "Our money management firm uses the low-PE method as it's core strategy, but also utilizes the other 3 contrarian strategies extensively." Dreman's studies showed that the cheapest 20% of the market by P/E outperformed the most expensive 20% by 6.7% annually. It should be cautioned that Dreman's portfolio did suffer in the 2008 financial crisis due to an overweighting of low P/E banks. Dreman though continues to evangelise the power of contrarian investing to counter behavioural biases. more »

Value Investing
5 Year Return: 79.2%
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
5 Year Return: 78.2%
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
5 Year Return: 69.3%
PYAD Screen

PYAD is a value and dividend income strategy devised by UK investor and writer, Stephen Bland. It focuses on finding value stocks with relatively high yields and no debt. PYAD is the acronym for the strategy's four filters, which include the Price to Earnings ratio, Yield, Assets (Price to Book Value) and Debt. Specifically, the strategy looks for companies with a Price to Earnings ratio of two-thirds that of the market and a Yield that is 50% above the market average. Stephen Bland says: "My principal aim in this was firstly to minimise the downside before I considered any trading upside to a share. I knew it wouldn't work in every case, there was bound to be the odd failure, but I reckoned that overall it would perform well. I was right and it did, producing handsome returns over the years." The PYAD strategy became well followed by Motley Fool readers. more »

Income Investing
5 Year Return: 67.2%
Charles Kirkpatrick Value Screen

Charles Kirkpatrick Value is a strategy loosely based on the approach of US investment strategist & technician Charles Kirkpatrick, who wrote Beat the Market. It combines relative value, growth and momentum factors and is derived from Kirkpatrick's successful Growth Model. Concerned that growth strategies are susceptible to market downturns, Kirkpatrick devised a value approach that uses the price-to-sales ratio as a risk filter. This interpretation of the screen looks for the cheapest 30% of stocks based on price-to-sales, together with the top 20% of shares with the strongest 130-day Moving Average and then the top 10% with the strongest growth in operating profit. Kirkpatrick wrote: "When I read O'Shaughnessy's book What Works on Wall Street, I discovered from his tests that one way to potentially screen for risks initially was to use the price-to-sales ratio. Unlike O'Shaughnessy, who used the raw figure and set a limit, I used a relative calculation." Can we dig up any performance figures from his book? more »

Value Investing
5 Year Return: 64.4%
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
5 Year Return: 64.1%
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