Revisiting a cyclical screen: turnaround opportunities?

Back in May 2023, I explored a subscriber request to create a screen to look for stocks in cyclical and sensitive sectors that might be about to see an upturn.

It turned out to be an interesting task. I drew on ideas from famed investors Jim Slater and Peter Lynch, as well as my own views on what factors might be worth highlighting.

In short, I wanted to find companies whose profitability was below historic average levels, but which were attractively valued and showing signs of a return to earnings growth.

Here’s a snapshot of the rules I created for my Cyclical Sectors Turning Up? screen:

You can read the original article here, including a detailed explanation of the screening rules I chose to use.

Fast forward 20 months and the market environment has changed somewhat. Interest rates appear to have peaked, geopolitical events continue to happen, and the FTSE 100 is trading at record highs.

I thought it would be interesting to revisit this screen to see:

• How the stocks I highlighted in May ‘23 have performed;

• Which companies and sectors feature most heavily in the results today.

How has the screen performed?

Back in May 2023, a total of 33 stocks qualified for my screen. I’ve put them all in a table below, with the individual share price gain for each stock over the period.

On average, these shares have gained 21% over the 20 months since May 2023. That’s nearly twice the 12% gain recorded by the FTSE 100 over the same period:

*Takeover

Comments: one thing that stands out to me is the wide range of results, with no clear pattern across sectors. Six stocks delivered gains of more than 100%. But at the other end of the spectrum, four shares fell by more than 50%.

These results confirm what I’d expect – for a farming-type strategy like this, a good level of diversification is essential.

Could I risk greater concentration by relying on the StockRanks as a secondary filter? The eight shares below were the only ones with a StockRank over 80 in my original screen results:

Top-ranked screen stocks: 09/05/2023

While this is too small a sample to draw a rigorous conclusion, the shares delivered an average share price gain of 27.6% over the period, 6.6% higher than the 21% average for all of the screen results.

That’s encouraging, perhaps. But I think the presence of accident-prone IG Design at the top of this list is a useful reminder that the StockRanks are also most effective when used in a portfolio approach.

Revisiting the screen: new stocks

At the time of writing, my Cyclical Sectors Turning Up? screen returns 53 stocks. That’s a 55% increase in the result set compared to May 2023.

You can find this screen here - feel free to copy and modify it.

I am not sure if this signifies a greater level of opportunity in the market, or is just a statistical anomaly. Now, as then, my personal view is that there are plenty of attractive opportunities in UK shares.

However, as we’ve seen over the last 20 months, macro events are likely to combine with sectoral shifts and company-specific mishaps to give a different outcome to that which we might guess at today. Diversification is likely to remain the only free lunch here.

Here are the results as of 7 February 2025:

Comments: Perhaps the most obvious theme here is the UK housing market. I count 14 stocks with links to housebuilding or home improvement. That’s 26% of the total.

Among these, we’ve recently commented on a number in the Daily Stock Market Report:

• Kingfisher 25 Nov 24 (the B&Q/Screwfix owner is also in the 2025 NAPS portfolio)

• Eurocell (28 Jan 25)

• Persimmon (14 Jan 25)

• Sanderson Design (20 Jan 25)

• Vistry (15 Jan 25)

• Travis Perkins (24 Oct 24)

• Speedy Hire (3 Feb 25)

• Topps Tiles (8 Jan 25) (2 Dec 24)

Financials are in second place, with 12 stocks. These include a mix of asset managers, insurers and property/infrastructure investment trusts. A number of these have also featured in the daily report in recent months:

• City of London Investment Group (20 Jan 25)

• Premier Miton (16 Jan 25) (4 Dec 24)

• S&U (11 Dec 24)

• Legal & General (7 Feb 25)

• Real Estate Investors (16 Jan 25)

• Schroders (5 Nov 24)

Recruiters are another theme, with both Robert Walters and Hays on the list. Graham commented on Robert Walters on 15 Jan 25. He speculated that sentiment might have reached a low after the shares rose following a profit warning.

Two repeat appearances from last time are Trifast and IG Design. Both continue to struggle with difficult turnarounds. We last looked at Trifast last July and IG Design more recently, on 17 Jan 25.

Across other sectors, there are some familiar names for regular readers of the Daily Report:

• Gear4music (6 Sept 24)

• James Fisher and Sons (5 Feb 25)

• De La Rue (12 Dec 24)

• TT Electronics (12 Dec 24)

• NCC (10 Dec 24)

• Focusrite (31 Jan 25) (27 Nov 24)

• Burberry (24 Jan 25)

• Videndum (16 Dec 24)

• RM (11 Dec 24)

Conclusions

I am pleasantly surprised by how well the screen performed last time around. While past performance is no guarantee of future returns, I would argue there are some interesting companies in this list, at attractive valuations.

In my view, the results of this screen could be worth considering for both farmers (systematic investors) and hunters (stockpickers) – with the caveat, of course, that these results are not recommendation and should be subject to further research.

As always, please let me know what you think in the comments below!

Disclosure: at the time of publication, Roland owned shares in City of London Investment Group and Legal & General.