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Screening Strategies

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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: 31.2%
Geraldine Weiss Lite Dividend Screen

Geraldine Weiss Dividends is an income investing strategy based on some of the rules used by US investor Geraldine Weiss. The approach targets large capitalisation companies with relatively high yields, and uses the dividend yield as a measure of value together with quality factors. It buys stocks when their yields are close to their historical highs and then sells them when the yields drift lower. Weiss is reported to use 7 core criteria in her strategy, including a comparison of a stock's historic average yield with its current yield. Weiss said: "Dividends provide a cushion of safety when a stock starts going down. When the stock price drops, the yield gets to very attractive levels, so many investors will step in and buy, reversing the trend of the stock." Weiss has been writing the Investment Quality Trends newsletter since 1966. In January 2000, it began publishing a list of its top 13 picks for the upcoming year. Dubbed "The Lucky 13", these selections have generated a claimed average total annual gain of 15.18%. more »

Income Investing
5 Year Return: 27.8%
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
5 Year Return: 27.0%
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: 24.2%
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
5 Year Return: 22.5%
Philip Fisher Growth Screen

Philip Fisher Growth is a growth investing strategy inspired by the approach of legendary US investor Philip Fisher, who wrote Common Stocks and Uncommon Profits. The strategy is based on his 15 point checklist for finding growth stocks. It looks for a track record of strong sales growth, above average net margins and a low price-to-earnings growth rate over five years. Philip Fisher wrote: "If the right stocks are bought and held long enough they will always produce some profit. Usually they produce a handsome profit." His most famous investment was stock in Motorola, which he acquired in 1955 and held until his death, during which time the shares grew 20-fold. Philip Fisher's investment management firm is now headed by his son, the highly regarded value investor, Ken Fisher, whose stock picking strategy is also tracked by Stockopedia. more »

Growth Investing
5 Year Return: 21.9%
Quality Income Screen

Quality Income is a dividend strategy focused on firms with strong fundamentals and high yields, based on research by Societe Generale. It looks for quality income stocks using checklists for identifying strong financial health, low bankruptcy risk and high, but not excessive, yields. Specifically, firms must be capitalised at more than £800 million, have a Piotroski F-Score of more than 7 out of 9 and a strong Altman Z-Score. Yields are capped at 15% to avoid potential dividend traps.The SocGen team explains: "As a real asset class, we think Quality Income is an attractive alternative to anyone buying credit thinking that’s the only way to generate a high yield." SocGen found that quality income stocks produced standout total returns that averaged 11.6% per year since between 1990 and 2012, more than doubling the return of the global equity markets but with significantly reduced volatility. more »

Income Investing
5 Year Return: 21.4%
Large Cap Dividend Attraction Screen

Large Cap Dividend Attraction is an income strategy discussed by Kevin Matras in his book, Finding Number 1 Stocks. It focuses on dividends paid by strong, large-cap companies with long track records of both earnings and dividend growth and where analysts are upgrading their earnings forecasts. This version of the strategy assesses 5-year dividend growth, Return on Equity, earnings per share growth and Price to Operating Cashflow. It also look for the highest percentage EPS upgrades over the past three months for the next financial year. Kevin Matras explains: "Larger companies with solid earnings, but without the aggressive growth rates that may have marked their earlier years, will often reward their investors by paying out a portion of their earnings as dividends." more »

Income Investing
5 Year Return: 13.9%
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: 13.1%
Buffettology-esque Historical Growth Screen

Warren Buffett Historical Growth is a quality investing strategy inspired by an interpretation of Warren Buffett's investment approach by Mary Buffett and David Clark in their book, The New Buffettology. It is a strategy that combines Buffett's focus on value and business quality. To work out whether the stock is reasonably valued, the strategy uses historical earnings growth; the higher that growth rate is, the more likely it is that the company has a durable competitive advantage. The strategy also looks for low debt and a high earnings yield, return on equity and return on capital employed. In The New Buffettology, Mary Buffett and David Clark explain: "Historical per share earnings that are both strong and show an upward trend indicate a durable competitive advantage." Remember, Buffett is famous for looking beyond financial measures when examining the quality of a business franchise. more »

Quality Investing
5 Year Return: 12.6%
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
5 Year Return: 9.5%
James Montier 'Cooking the Books' Screen

James Montier Cooking the Books is a short selling strategy based on research by economist and equity strategist James Montier. It uses Low Quality criteria to identify stocks that could be at risk of bad accounting practice. The 6-point C-Score checklist looks at 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 property, plant and equipment and high total asset growth. Montier found that the C-Score was even more effective when used to assess stocks that look over-valued on a price-to-sales ratio basis. James Montier wrote: "In good times, few focus on such 'mundane' issues as earnings quality and footnotes. However, this lack of attention to 'detail' tends to come back and bite investors in the arse during bad times." Montier found that stocks with a C-score of 5 and a price-to-sales ratio of greater than 2 tend to generate a negative absolute return of 4% per year. Short selling shares can be very risky but the C-Score can still be used as an indicator of which stocks should be avoided. more »

Short Selling
5 Year Return: 5.2%
Walter Schloss 'New Lows' Screen

Walter Schloss New Lows is a value investing strategy based on an approach used by Walter Schloss, who was a disciple of value investing legend Benjamin Graham. The strategy uses value and price factors as its main rules. It searches for companies that are trading below book value, using the price-to-book ratio, and at prices that are close to new lows. Schloss said: "We want to buy cheap stocks based on a small premium over book value, usually a depressed market price, a record that goes back at least 20 years?and one that doesn't have much debt." Between 1956 and 2000, Schloss's fund produced a compound annual growth rate of 15.7%. In a 1994 shareholder letter, Warren Buffett wrote: "Walter continues to outperform managers who work in temples filled with paintings, staff and computers. And he accomplishes this feat by rummaging among the cigar butts on the floor of capitalism." more »

Bargain Stocks
5 Year Return: 4.8%
Benjamin Graham Defensive Investor Screen

Benjamin Graham Defensive Investor is a demanding, deep value 'bargain' investing strategy based on rules suggested by legendary investor, Benjamin Graham, who wrote The Intelligent Investor. The strategy focuses on value stocks with good quality financial characteristics. It uses price-to-earnings as a valuation measure and looks for larger companies with a consistent track record of earnings and dividend growth, manageable debt and a high current ratio. Ben Graham wrote: "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." Defensive Investor is a stricter approach than Ben Graham's enterprising strategy, which look for unpopular companies, special situations and 'bargain' issues. more »

Bargain Stocks
5 Year Return: 4.7%
David Dreman High Dividend Screen

David Dreman High Dividends is a contrarian high yield strategy championed by the renowned US fund manager and author David Dreman in his book Contrarian Investment Strategies. Dreman favoured buying out of favour value stocks with straightforward filters for quality. In this version of the screen we filter for higher yielding shares with strong financial positions, as many favourable operating and financial ratios as possible, with above average earnings growth. Dreman explains: "High yielding stocks provide you with the best protection in a bear market. These stocks give the dividend oriented investor more protection of principal on the downside and provide both rising dividend income as well as capital appreciation." Dreman's studies showed that the highest quintile of dividend paying stocks in the market outperformed those with low or no dividends by 4% annually, with half of the returns coming from the dividends themselves. He cautioned that "buying stocks with high dividend yields beats the market, but provides lower total returns than his other contrarian strategies". Dreman runs the firm Dreman Value Management and continues to research and write on contrarian and behavioural investing. more »

Value Investing
5 Year Return: 4.1%
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
5 Year Return: 3.3%
Bold Earnings Revisions Screen

Bold Earnings Revisions is a momentum strategy that aims to spot the hidden signals in analyst forecasts, which has been documented in research and explored further by Jack Hough in his book Your Next Great Stock. Specifically, it captures the 'earnings momentum' in shares where an analyst has recently made a bold upward change to their earnings forecasts. The strategy identifies stocks that have received an earnings forecast upgrade during the past month. It's then possible to scrutinise the list to determine whether the analyst is moving towards the consensus of analysts or away from it. Jack Hough says: "Keep in mind that the size of an estimate revision isn't what makes it bold. Rather, what matters is whether it moves away from the herd." Singling out one just one analyst upgrade won't tell you whether that analyst is moving away from the consensus or towards it. So check the list carefully. more »

Momentum Investing
5 Year Return: -0.7%
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: -2.8%
Cash Accruals Screen

Cash Accruals is a quality investing strategy inspired by research into the 'accrual anomaly' by American accounting professor Richard Sloan. In company accounts, accruals are adjustments made when revenues have been booked but cash has not yet been received. This screen uses low levels of accruals as a positive quality signal. It looks for companies with a low accrual ratio, where free cash flow is higher than net income and where earnings-per-share is growing. Professor Sloan's research found that: "...firms with relatively high levels of accruals experience negative future abnormal stock returns that are concentrated around future earnings announcements." The research found that companies with small or negative accruals vastly outperform (+10%) those with large accruals. It concluded that investors focus too heavily on earnings and not on cash generation and that the share prices of companies with high accruals are more likely to reverse in future years. more »

Quality Investing
5 Year Return: -5.7%
Dividend Dogs (Forecast)

Forecast Dividend Dogs of the FTSE is a high yield income strategy inspired by the popular 'Dogs of the Dow' approach of US investor Michael O'Higgins, who wrote 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 rolling 1-year forecast 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
5 Year Return: -6.2%
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