Revisiting the Screen of Screens - what to do with the winners?

Dart (LON:DTG), the airline and logistics business that’s proved to be such a triumph for patient value hunters over the past year, has long been one of the best performing shares on Stockopedia’s Screen of Screens. But despite being a constant presence for over eight months, Dart has only been qualifying recently by a wafer-thin margin and actually came close to losing its place earlier this month. For investors holding its shares, this probably won’t set off too many alarm bells, but it does raise some interesting questions about the Screen of Screens and when it might be time to rethink the investment case for a company that loses its place. 

To qualify for the Screen of Screens, a stock must be meeting the criteria for at least three of the 60+ long-only Guru Screens tracked by Stockopedia. Filtering the market for those companies that are regularly achieving a place on several different strategies is a useful proxy for shares with good fundamentals across a wide range of investing criteria. Over one year, the Screen of Screens has produced an impressive return of 36%, outperforming the FTSE 100 by 19.3% – a performance that’s achieved JUST by finding those companies that are qualifying for the highest numbers of investing strategies. 

In the case of Dart, its share price began taxiing for take-off last autumn and by the time we started tracking qualification histories in November it had already qualified for a place on the Screen of Screens. A 12-month price rise of 209% to 235p has vindicated the huge amounts of head scratching by numerous value bloggers, many of whom felt the company had long been under-valued (and in some cases still do). Part of the enigma with Dart’s valuation has been in weighing its hugely profitable Jet2 package holidays business against the many cost risks that airlines face. Commentators like Paul Scott and Richard Beddard have examined these issues at length. 

In his Adventurous Investor column in the FT in February, David Stevenson wrote about how the Screen of Screens is a useful way of finding stocks like Dart before they get away. Ironically, while David was ruing what he perceived to be a missed opportunity (Dart had already doubled in price), the fact was that the shares still had a very long way to go. Following its full-year results last week it qualifies for eight individual strategies spanning value, momentum, quality and growth – but it has only qualified (or re-qualified) for six of them during the past two weeks – suggesting that the company has been very close to losing its place on the screen. 

While Dart has managed to maintain its position, others have suffered periodic disqualification despite delivering strong share price performances. Since last November recruitment company Staffline (LON:STAF) has been a regular on the screen but has had two spells of absence. Even so, over that period its shares have risen by 74% to 450p (see chart) and it now qualifies for seven separate strategies. Likewise, London-focused housebuilder Telford Homes (LON:TEF) has been in and out of the screen seven times so far this year but its shares have nevertheless enjoyed a smooth upward trajectory, gaining 55% to 315p. 

By contrast, recruitment group Harvey Nash (LON:HVN) flirted with the screen for just a couple of days earlier this year but following its full year results at the end of April it qualified again and has since remained on the screen. Harvey Nash is a candidate on five different strategies including Joel Greenblatt’s Magic Formula and has seen its shares rise by 3.4% over the past 12 weeks. It has been even better at holiday operator TUI Travel (LON:TT.) , which spent three days on the screen in January before joining again in early May. It has maintained its presence since then and seen its shares gain 12.5% to 377p to boot. 

Care needed 

In many ways the simplicity of the Screen of Screens is the key to its recent success as it highlights shares that may be qualifying for multiple styles of investing and thus on the watchlists of a diverse group of potential investors. While the portfolio behind the Screen of Screens has returned 36% over 12 months, the stocks in the screen (like any screening strategy) can be sensitive to the criteria. 

Like all our tracked screens, the Screen of Screens updates the latest candidates every day but we mechnically rebalance the tracked list every three months. When implementing a systematic equity strategy, it’s important to have a robust rebalancing discipline in place that isn’t based based on human emotions like fear and greed but equally selling just because a stock falls out of candidacy on a random day may not make much sense either.

Whether the use of time based, technical or fundamental rules are chosen to guide sell decisions is very much a personal choice and often depends on portfolio size, tax and diversification requirements. Simply selling a share because it drops out of a preferred strategy could lead to unnecessary over-trading and all the high costs that go with it. And as we know, overtrading is the killer of long term investment returns. 

 

To view the stocks currently qualifying for Stockopedia’s Screen of Screens as well as all our other GuruModel strategies, why not take a free trial?