What are we looking for?
We'll look again for stocks you may want to avoid, but this time turn our attention to the United States.
More about today's screen
A week ago, we asked Morningstar CPMS to help find Canadian stocks that have poor short-term momentum. This week's screen will look for many of the same factors with U.S. stocks:
Low price relative to 52-week high (the lower the price the higher the ranking);
Poor price change over the last three months;
Poor price change over the last six months;
Negative earnings surprises in the last quarter;
Unattractive trends in the three-month change in forward earnings estimates;
Poor earnings growth (quarter over quarter).
CPMS excluded stocks with poor trading liquidity and ones with market caps below $500-million (U.S.).
More about CPMS
CPMS is an equity research and portfolio analysis firm owned by Morningstar Canada. It maintains a database of about 680 of the largest and more liquid Canadian stocks, plus approximately 2,100 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find?
Similar to last week's Canadian portfolio, CPMS created a portfolio of the worst 20 U.S. momentum stocks from this screen. It ranked each of the 2,144 names it follows according to all the criteria. Remember, we're looking for stocks with low momentum so an "E" ranks higher than an "A."
The 20 names in the portfolio were 75-per-cent determined by price factors with earnings factors accounting for the remainder. Stocks are ranked monthly and replaced when they no longer rank in the top 20 per cent of the database.
Stocks with an earnings ranking of "C+" or greater were excluded so that all names would have poor earnings momentum.
Jamie Hynes, senior consultant with CPMS, tested the portfolio strategy going back to 1993 and found it has produced an annualized return of 3.2 per cent since inception, compared with 8.3 per cent for the S&P 500 Total Return Index.
That's a very poor performance, but it is still considerably better than the Canadian version we presented last week, Mr. Hynes said.
It can be tricky using this list to short the market, as it was up 110 per cent in 2009 and has actually beat the market in seven of 17 years. It was positive in 10 of 17 years (S&P 500 was positive in 13 of 17 years).
Book value and average analyst price target figures were not included in the screen, but they were included in the table so that people can think about doing some bargain hunting.