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Screening Strategies

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Piotroski F-Score Price to Earnings Value Screen

The Piotroski F-Score screen aims to identify deep bargain-bucket stocks that are in recovery.  Josef Piotroski, a finance professor, recognized that, while it has long been shown that bargain stocks have strong collective returns, there is very wide individual variability. What he wondered was whether it was possible to weed out the poor performers and identify the winners in advance. He therefore sought to develop a simple accounting-based scoring system for evaluating a stock’s financial strength. Piotroski's F-Score looks at value stocks and tests nine variables from a company’s financial statements. One point is awarded for each test that a stock passes. Piotroski regards any stocks that scored eight or nine points as being the strongest. In this version of the screen, Price to Earnings, rather than Price to Book, is used as the measure of "cheapness".  more »

Value Investing
6 Month Return: -5.4%
Martin Zweig Growth Screen

A Growth at a Reasonable price (GARP) investing strategy that uses both fundamental analysis and market timing. It focuses on strong growth in earnings and sales, a reasonable price-earnings ratio given the company's growth rate, insider support, and relatively strong price action. Martin E. Zweig was a reputed US growth money manager back in the 1990’s as well as an investment newsletter writer. He was named stock picker of the year 2 times in a row and wrote a book titled “Winning on Wall Street”, which outlines his investing strategy. Zweig is essentially a growth investor but with a conservative streak, focusing on selecting growth stocks with certain value characteristics, through a system that uses both fundamental analysis and market timing. more »

Growth Investing
6 Month Return: -5.6%
David Dreman High Dividend Screen

David Dreman champions a contrarian investment approach based on interpreting market psychology and using value measures to pick stocks that are out of favour with the market. Dreman invests in out-of-favour stocks, often in out-of-favour industries, that he identifies using relatively straightforward metric criteria. "I buy stocks when they are battered. I am strict with my discipline. I always buy stocks with low price-earnings ratios, low price-to-book value ratios and higher-than-average yield. Academic studies have shown that a strategy of buying out-of-favor stocks with low P/E, price-to-book and price-to-cash flow ratios outperforms the market pretty consistently over long periods of time."   more »

Value Investing
6 Month Return: -5.6%
Richard Driehaus Screen

This screen is based on the momentum-focused approach of Richard Driehaus, a mutual fund guru who was named to Barron’s “All-Century” team of the 25 most influential and powerful mutual fund managers in 2000. It focuses on companies with momentum in earnings and prices, particularly small- to mid-cap companies with strong, sustained earnings growth that have had “significant” earnings surprises. At the core of his strategy are earnings surprises. Companies with positive earnings surprises are buys and negatives are sells. It also values surprises in which the range or standard deviation of estimates is tighter, which has a more significant impact on subsequent returns. This strategy looks for companies with positive price momentum over the last four weeks and also considers how stocks do on a relative basis versus the S&P 500. Driehaus prefer small to mid cap stocks. The investor may also wish to monitor liquidity in terms of trading volume. more »

Momentum Investing
6 Month Return: -5.6%
James Montier Trinity of Risk Screen

This is a screen for short sellers (avoiding stocks on these lists is advisable). James Montier suggested this screen based on the writings of Benjamin Graham. Graham proposed three primary sources of risk to your investment in shares or any other asset - Valuation Risk, Earnings Risk and Financial Risk - each of which should be seriously considered when purchasing a new position. This screen looks for a Graham and Dodd PE of greater than 16x (valuation risk), it must have current EPS greater than twice the ten year average (business/earnings risk), and it must also have an Altman Z score of less than 1.8 (balance sheet/financial risk). more »

Short Selling
6 Month Return: -5.9%
Josef Lakonishok Screen

A value and momentum screen focused on finding under-valued, out-of-favor companies just at the point when the market is starting to recognise them. According to Lakonishok, investors have judgmental biases and behavioral weaknesses including the tendency to extrapolate the past too far into the future, to wrongly equate a good company with a good investment irrespective of price, to ignore statistical evidence and to develop a "mindset" about a company. As a result, "value stocks become underpriced and glamour stocks become overpriced relative to their fundamentals".  This screen looks for: At least one of Price-to-book, price-to-cash-flow, price-earnings or price-to-sales ratios more favourable than the industry  6 Month relative strength above zero  3 month relative strength above zero EPS Surprise or a trending revision in the analyst consensus more »

Momentum Investing
6 Month Return: -6.6%
Peter Lynch Growth Screen

This is a 'fast growers' screen which looks for consistently profitable, relatively unknown, low-debt, reasonably priced stocks with high, but not excessive, growth. Mr. Lynch developed his investment philosophy at Fidelity, and gained his considerable fame managing Fidelity's Magellan Fund. His selection approach is strictly a bottom-up "buy what you know" one. He suggested focusing on companies familiar to the investor, applying fundamental analysis which emphasizes a thorough understanding of the company, its prospects, its competitive environment, and whether the stock can be purchased at a reasonable price.  It’s frankly impossible to come up with a screen that exactly replicates Lynch’s multi-faceted investing strategy. Nevertheless, the following approach seeks to emulate some of the key elements of his search for “fast growers”. You can read more here. more »

Growth Investing
6 Month Return: -7.4%
Earnings Downgrade Momentum Screen

This is a strategy that aims to zero in on stocks where brokers are downgrading their earnings estimates.  In theory, this is a short-selling strategy! The idea is that brokers have a behavioural bias which anchors their new estimates too closely to their previous estimates thus making a high likelihood that earnings estimates will continue to fall in future. Continuing earnings estimate downgrades can be negative for stock prices.   However, research has shown that investing on the basis of broker recommendations does not generally work because of the bias in those recommendations. Research suggests that focusing on positive recent changes in broker recommendations may be more fruitful, particularly in combination with other signals, although this doesn't appear to be true for downgrades. You can read more here.  more »

Short Selling
6 Month Return: -7.6%
Buffettology-esque Historical Growth Screen

This screen seeks to replicate the approach of Warren Buffett,   arguably the most successful living investor - based on the summary/interpretation by Mary Buffett (a former daughter-in-law) in the best-selling book, "The New Buffettology".  In Chapter 13, Mary Buffett outlines a number of screening-type criteria entitled "Warren's Checklist for Potential Investments: His Ten Points of Light", which we summarise out below. Not all of these points are quantitative in nature, admittedly, but there's certainly the beginnings of a good Buffett screen, and one with a slightly different emphasis to that of the Buffett-Hagstrom screen. This version uses the Historical Growth method to calculate the "expected return". more »

Quality Investing
6 Month Return: -7.8%
Growth at a Reasonable Price Screen

This is a strategy that aims to highlight companies showing growth at a reasonable price.  This is a mix of value and growth investing often abbreviated as 'GARP'.   GARP investors typically target more sustainable growth rates of 10% – 20%, as opposed to an aggressive growth investor who might target 25%+ growth rates. GARP investors also tend to focus on a company having a high return on capital (especially relative to their industry average) as an indication of superior potential. You can read more here. more »

Growth Investing
6 Month Return: -7.9%
Trading below Cash Screen

This screen is loosely based on the "Cash Index" approach outlined by James Altucher in his book, "Trade Like Warren Buffett". He suggests a multi-pronged approach to analysing potential bargain/arbitrage stocks in times of market distress (post 2001 bubble / Iraq War). First of all, he suggests that it's important to recognise that these stocks are likely to be trading for less than cash for a reason, namely the mar­ket thinks they will eventually declare bankruptcy. Some of the possible risks include: i) Inaccurate reflection of "cash on hand" in their books (leases, severance packages, etc), ii) Business model destined to fail, iii) Management with no incentive to return value to shareholders. To minimise risk of buying a turkey, Altucher looks for eight factors: i) Market cap below cash, ii) Very low leverage, iii) Enough cash headroom to cover the current annual burn-rate, and iv) some stability in revenues and earnings. In addition to these easily-screenable criteria, he suggested looking out for more qualitative factors: v) A reasonable belief that the sell-off in the stock was partly irrational, vi) Favorable arbitrage analysis - , i) Insider buying and viii) Institutional ownership.  more »

Bargain Stocks
6 Month Return: -8.1%
Large Cap Dividend Attraction Screen

This is a large-cap dividend focused screen, loosely based on the "Dividend Attraction" screen discussed by Kevin Matras in his useful book, "Finding Number 1 Stocks". It focuses on the added dividend security to be found amongst larger-cap stocks in a credit-constrained environment. In Matras' version, however, the primary filter is the Zacks Rank (a proprietary metric analysing analyst forecasts for i) Agreement, ii) Magnitude, iii) Upside Potential, Surprise). However, this version just uses the 3 month change in analyst forecasts instead. The other elements are: i) A market capitalisation above £1.5 bn, ii) Positive 5 Year Dividend growth, iii) Above Average Return on Equity, iv) Above Average EPS Growth and v) Price to Operating Cashflow. more »

Income Investing
6 Month Return: -8.1%
Negative Enterprise Value Screen

Some companies trade so cheaply that their cash balance is worth more than the company's enterprise value (i.e. the sum of the market cap and total long term debts).  This is known as a negative enterprise value (EV) and searching for such companies is a common bargain stock strategy. While, in theory, a negative EV may seem to be an easy arbitrage opportunity, whereby one could buy all of the debt and equity in a firm and use its cash balance to cover costs and keep the difference, there are a number of reasons to be cautious: Firstly, the enterprise value may not have captured all of the debt outstanding in the firm (e.g. the present value of lease commitments) and secondly the cash balance is from the balance sheet (rather than stated at the today's date used for the market cap). Given how quickly firms burn through cash, what you see on the balance sheet may not reflect what the firm has as of today as a cash balance so be careful! You can read more here. more »

Bargain Stocks
6 Month Return: -8.2%
Earnings Upgrade Momentum Screen

A momentum screen based on buying stocks with rising analyst earnings estimate revisions in light of empirical findings that stocks with their estimates revised often outperform the market over at least the next 12 months. Although investing on the basis of broker recommendations alone does not appear to be a successful strategy because of the bias in those recommendations, research suggests that focusing on recent changes in broker recommendations is more fruitful, particularly in combination with other signals. You can read more here.  more »

Momentum Investing
6 Month Return: -8.2%
52 Week High Momentum Screen

An investing screen based on buying stocks that are close to their 52 week high (and/or selling stocks that are close to their 52 week lows). Similar to other forms of momentum investing, this seems to work because investors tend to under-react to positive (or negative) information about those kinds of stocks. Researchers surmise that investors use the 52- week high as an “anchor” against which they value stocks, thus they tend to be reluctant to buy a stock as it nears this point regardless of new positive information. As a result, investors underreact when stock prices approach the 52-week high, and consequently, contrary to most investors' expectations, stocks near their 52-week highs tend to be systematically undervalued.  Finally, when information prevails and the 52 week high is broken, the market “wakes up” and prices see excess gains.   You can read more here. more »

6 Month Return: -9.3%
Greenblatt's Magic Formula

This screen implements the Magic Formula value investing strategy pioneered by hedge fund manager, Joel Greenblatt. It is based on buying 20-30 "good, cheap companies" defined as having the best available combined MFI ranking in terms of Earnings Yield and a Return on Capital.  Greenblatt argues that return on capital is the best determinant of whether a business is a good one or not (companies that can earn a high ROC over time generally have a special advantage that keeps competition from destroying it, such as a unique business model). Earnings yield is his metric for 'cheapness'. Greenblatt believes that stock prices of a firm can experience “wild” swings even as the value of the company stays relatively constant giving investors opportunities to buy low and sell high. more »

Quality Investing
6 Month Return: -10.9%
James O'Shaugnessy Cornerstone Growth

The Cornerstone Growth Screen is a growth screen which combines relative strength, earnings growth and a price-to-sales value measure, as outlined in the third edition of James O'Shaughnessy’s seminal 1996 book What Works on Wall Street. According to his book, O'Shaughnessy found that his growth strategy outperformed the market producing an annual compound return of 18% from 1954 to 1996, compared to 8.3% for the S&P 500 Index (this beat his Cornerstone Value strategy which achieved 15%, although it was more volatile). more »

Growth Investing
6 Month Return: -11.7%
James Montier 'Cooking the Books' Screen

James Montier (former Soc Gen global equity strategist) aimed to create a simple scoring system that would highlight companies that may be 'cooking the books'. The C-Score was the result. It measures six inputs including the divergence between net income and cash-flow, increasing days sales outstanding, increasing days sales of inventory, increasing current assets to revenues, declining depreciation relative to PPE and high total asset growth. Montier found that companies with high C-Scores under performed the market by 8% per annum, generating a mere 1.8% return between 1993 and 2007. He recommended using it in tandem with a high valuation measure. A C Score = 5 used in tandem with a Price/Sales Ratio > 2 generated a negative absolute return of 4% p.a. in the US. For a full review of the C Score please click here. more »

Short Selling
6 Month Return: -12.1%
Piotroski F-Score Price to Book Value Screen

The Piotroski F-Score screen aims to identify deep bargain-bucket stocks that are in recovery.  Josef Piotroski, a finance professor, recognized that, while it has long been shown that bargain stocks (having a low Price to Book Value) have strong collective returns, there is very wide individual variability. “Embedded in that mix of companies, you have some that are just stellar. Their performance turns around [but] half of the firms languish; they continue to perform poorly and eventually de-list or enter bankruptcy.” What he wondered was whether it was possible to weed out the poor performers and identify the winners in advance. He therefore sought to develop a simple accounting-based scoring system for evaluating a stock’s financial strength. Piotroski's F-Score looks at value stocks, i.e. the bottom 20% of the market in terms of price to book value, and tests nine variables from a company’s financial statements. One point is awarded for each test that a stock passes. Piotroski regards any stocks that scored eight or nine points as being the strongest. more »

Value Investing
6 Month Return: -13.3%
James Montier 'Unholy Trinity' Screen

This is a three point short selling screen based on the approach outlined by James Montier in 2008 to identify potential candidates in weak markets.   1. High Valuation (Price to Sales Ratio > 1) - Calling the Price to Sales ratio 'insane' as a valuation measure due to its lack of focus on profitability,  Montier first screened for companies trading at a multiple of at least 4 times sales. 2. Weak Fundamentals  (F Score < 4) -  With the valuation side covered, he then qualified this list by screening for the financially weak companies having a Piotroski F Score of 3 or less.  3. Poor Capital Discipline (Asset Growth > 10%) -  But unsatisfied with only focusing on high valuation and weak fundamentals, Montier also showed that company executives were often wasteful capital allocators; research showing that companies with low asset growth rates highly outperform companies with high asset growth rates by 13% annually.  more »

Short Selling
6 Month Return: -13.3%
67 strategies sorted by