A Few Of Our Favorite Screens

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These Are a Few of our Favorite Screens

For the January Round Table, we spent some time with a few screening resources in the quest for some good ideas for further study. We’ll collect them here and tabulate the overall results, using a version of the coach’s poll for collegiate sports (20-16-12-8-6-4-2-1 for votes) and see what percolates to the top of the charts.

Screens Featured

The Top 25

Knighthunt4

Ivory Soap Screen

This screen is based on a recognition that the two most important characteristics of any investment are (1) the return forecast and (2) the quality of the company. The MANIFEST Rank is an index that combines the two characteristics with essentially equal weighting. Here are the top eight results of a current screen based solely on MANIFEST Rank > 99.44

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Triple Play Screen

This is one of the more popular screens that we’ve covered over the years. It generally works best after a bear market has raged for a while.

It focuses on some of the primary drivers for higher long-term return forecasts. The three things we’re looking for are:

  • Elevated return forecast … generally because of a (hopefully) temporarily hammered stock price.
  • Potential for P/E Expansion … a higher P/E in the future than the current P/E.
  • Margin Enhancement … projected profitability in the long-term forecast that is higher than current levels.

Using one of the current leaders for this screen, we note that Qualcomm (QCOM) has a low return forecast of 9-10% according to Value. Keep in mind that the average low return forecast for the Value Line universe is 3-4%.

We also see a future P/E of 16.0x versus current levels of 13-14×.

Value Line expects “flat” net margins in the 33-34%. The reason this triggered in our database is that the analyst consensus is more optimistic than Value Line when it comes to future profitability for Qualcomm.

For more on this Triple Play screening approach, check out the archived presentation at: https://www.manifestinvesting.com/forums/14/topics/2778

Triple play screen 20150129

Gateway Champions

This screen is inspired by our repeat group champions, the Broad Assets investment club of St. Louis. Broad Assets repeated as champion last year and is running 2nd this year as Groundhog VIII comes to a close in a few days. We featured the concept behind this screen in our Victory By Escape Velocity? cover story from May 2014.

Nutshell: If you really believe that stock price follows earnings, it makes all the sense in the world to look for those conditions.

In this case, we focus on year-over-year (2015 over 2014) earnings estimates and focus on the companies with the strongest upside. We also limit the field to companies that have shown increasing earnings for each of the 4-5 years displayed. (All year-over-year figures > 0%)

Lannett (LCI) continues to have strong expectations, but it will be interesting to see what Broad Assets does with LCI in the future as 2016 EPS estimates are finally plateauing. We also note the presence of Balchem (BCPC), a long time favorite of another St. Louis club — Mutual of St. Louis and our friends Jay and Ray.

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Schloss Screen

The American Association of Individual Investors (AAII) features a number of screens based on famous investors and methods including one of our time-honored all-time favorites, Walter Schloss.

Screening Criteria

  • Companies that trade on the over-the-counter market are excluded
  • ADR stocks are excluded
  • Companies in the financial sector are excluded
  • Stock has been traded for at least seven years
  • Current share price is less than the latest quarterly book value per share
  • Current share price is within 10% of its 52-week low (Hugh McManus has to like that one)
  • Percentage of insiders owning shares is higher than the median insider ownership percentage for the entire database
  • Long-term debt from the most recent quarter and fiscal year equals zero

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Piotroski Screen

Joseph Piotroski, associate professor of accounting at Stanford University’s Graduate School of Business, undertook a study of low price-to-book value stocks to see if its possible to establish some basic financial criteria to help separate the winners from the losers.

The result, a favorite screening method among AAII members, is the top-performing screen since inception nearly 20 years ago.

Low Price-to-Book-Value

Piotroski’s work starts with low-price-to-book-value stocks. Price-to-book value was a favorite measure of Benjamin Graham and his disciples who sought companies with a share price below their book value per share. While the market does a good job of valuing securities in the long-run, in the short-run it can overreact to information and push prices away from their true value.

Measures such as price-to-book-value ratio help to identify which stocks may be truly undervalued and neglected.

Motley Fool CAPS

Most frequently chosen Outperform Ratings by the CAPS All-Stars (successful stock pickers) that have 5-Star ratings on 1/29/2015.

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Modified McManus

Hugh likes to shop for high-quality companies when they are trading near their 52-week lows. He keeps a fairly short list of qualified accumulation targets for his personal portfolio. We covered this screening concept here: Gone Fishing … Patiently

What makes this version of the list “modified” is that we’ve applied his shopping methods to the 6000+ companies in the Value Line database, limiting qualifiers to Financial Strength ratings of B+ (or better) and a return forecast (VL 3-5 Yr Proj Ann Tot Return or PAR) to double digits, in general, or better. (Data Source: Value Line Investing Analyzer)

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Great Buffalo

One of our favorite sources of ideas are successful/active fund managers. One of our favorite small company mutual funds is Buffalo Growth (BUFSX) shepherded by Kent Gasaway and his team.

The accompanying table (exported from Morningstar/Premium Version) provides a summary of buy/accumulate decisions made over the last quarter by the Buffalo team.

KYTHERA Biopharmaceuticals (KYTH) is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market.

Case Studies and Analysis Demonstrations

The stocks featured during the January Round Table:

  • Caterpillar (CAT)
  • Google (GOOG)
  • MSC Industrial (MSM)
  • QUALCOMM (QCOM)

The audience selected QUALCOMM (QCOM) from the candidates.

Sell Transaction

MWI Veterinary Supply (MWIV) was “sold” from the tracking portfolio during the session. MWIV is being acquired by Amerisource (ABC) for $190. Ken Kavula selected MWIV back on 11/29/2011 for $64.79, so $1000 became $2969 — an annualized return of 40.5% and a relative return of +22.9% versus the Wilshire 5000.

Archived Recording of January Round Table

The recording of this event is now available on the event page:

https://www.manifestinvesting.com/events/163-round-table-january-2015

It can also be found on YouTube at:

http://youtu.be/38J1L6uYT5c

If you enjoy this session, please leave us a comment or click Like on the YouTube page.  Thanks!

Round Table (January 2015)

The stocks featured during the January Round Table:

  • Caterpillar (CAT)
  • Google (GOOG)
  • MSC Industrial (MSM)
  • QUALCOMM (QCOM)

The audience selected QUALCOMM (QCOM) from the candidates.

Sell Transaction

MWI Veterinary Supply (MWIV) was “sold” from the tracking portfolio during the session. MWIV is being acquired by Amerisource (ABC) for $190. Ken Kavula selected MWIV back on 11/29/2011 for $64.79, so $1000 became $2969 — an annualized return of 40.5% and a relative return of +22.9% versus the Wilshire 5000.

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April Round Table Highlights

As Ann mentions here, the April Round Table was challenged by barking dogs and thick thunder/lightning in Houston — but we persisted. In a subtle shift, we’re going to move Round Table highlights to the Stocks folder. Why? Although the portfolio design & management, and Round Table tracking portfolio are important, we do want to emphasize that the program core is centered on identifying stock study opportunities. We can do that and still stay focused on achieving those long-term superior relative returns.

Sorry to everyone I had to end my Round Table presentation so quickly. I am not sure any of what I said made sense. It’s hard to concentrate when you are being bombarded by lightning. The worst of the thunderstorm lasted about 45 minutes and we did lose power for a little while. Hope the rest of the Round Table went well.

Qualcomm (QCOM)

As for Qualcomm, I believe it is definitely a stock you should research. For a company of its size (24.12B estimated revenue for 2013), it continues to show signs of growth. I estimated the future growth sales at 13% and the future earnings per share at 11.5%. This results in a future eps of $6.12 which is a little higher than Value Line and a little lower than MI.

Qualcomm leads the list of companies that produce mobile chip sets for phones. It has a large amount of patents and they receive royalties from millions of mobile devices each year that should continue over the next 5-10 years.

Their chip sets are found in the current popular mobile devices from Apple, Samsung, Blackberry and Nokia.

The only concern that I could find was that some investors and analysts did not like that management has increased their spending (21% this past year). To me Qualcomm’s management appears to be doing a good job. They have no debt, their pre-tax profit is high and their return on equity is good. Sometimes you have to spend money to make money.

The recent drop in price offers a good opportunity to pick up the stock.

Anne

Polaris Industries (PII)

Ken Kavula’s presentation can be summed up pretty quickly.

“Polaris? You mean that snow mobile company???”

“Not exactly.” “Study it and see that there’s more, a lot more, to this story.”

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Caterpillar (CAT)

Hugh McManus described one of his favorite shopping methods, the quest for stocks that are trading near their 52-week low. In fact, we’ll probably spend more time with this notion because as he said, “One of the things we’ve witnessed over the years is that long-term investors, particularly those getting started, tend to purchase at stock prices which prove to be too high. We know that the typical stock will often trade at a low during a given year that is on the order of 50% of its 52-week high … so it makes sense (with patience and discipline) to watch for good companies trading at low prices.”

He also shared an intriguing tidbit about different treatment of large, higher-quality stocks versus vs. promising, emerging companies in that he’ll settle for 1-year lows for the larger companies … while demanding multi-year lows for the others. Fascinating and worthy of further exploration, in my opinion.

Buy low

C.H. Robinson (CHRW)

Mark doubled down on Cy Lynch’s fairly recent selection of C.H. Robinson (CHRW) — the transportation and logistics company. CHRW is the Solomon Select stock feature for May — so we’ll cover it “there.”

The audience seconded (thirded?) CHRW by choosing it from the alternatives.

There was some concern expressed during the polling about the potential for continued price “sag” in Caterpillar (CAT). Hugh’s response? “I hope so. I prefer a little sag while I’m accumulating.” (Grin)

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