WHAT ARE WE LOOKING FOR?
James O'Shaughnessy is a big fan of price-to-sales ratios, saying it is the "king of value factors."
For those of you who aren't
familiar with him, he is director of systematic equity for Bear Stearns Asset Management and manager of the RBC O'Shaughnessy family of mutual funds. He is also the
author of What Works on Wall Street, which is one of the best books written about stock screens. He has tested decades of data and found that stock with low price-to-sales ratios (PSR) help keep you away from overvalued stocks and consistently beat the market.
TODAY'S SEARCH
We'll screen Canadian stocks
today, looking for bargains using PSR, which is calculated by dividing the stock price by revenue per share. We'll add earnings growth and price momentum to this screen. Price momentum is important. Mr. O'Shaughnessy has found that stocks that have performed well over the past year tend to continue to outperform the next.
First, companies must have price-to-sales of less than 1.5 and have rising earnings from one year to the next. Stocks must also have above-average price returns for the past three months and six months. We'll add a minimum market capitalization of $200-million. Finally, we'll rank stocks by their 12-month return. This is what Mr. O'Shaughnessy calls his Cornerstone Growth screen.
SO WHAT DID WE TURN UP?
Martinrea is an auto parts company, but it is thriving where others are failing these days. It holds promise for continued growth, as analysts expect earnings to reach $1 a share in 2007 and $1.33 a share in 2008.
| EPS $ | 3-mo | 6-mo | 12-mo | |||||||
| $ Price | Market | Price | Last | EPS $ | Price | Price | Price | |||
| (as of | Cap | Rev. | to | 12 | Prev. | Chg. | Chg. | Chg. | ||
| Sym | Stock | May 8) | ($-mil) | ($-mil) | sales | mths | year | % | % | % |
| MRE | Martinrea Int'l Inc. | 18.1 | 1,158.2 | 757.4 | 1.38 | 0.58 | 0.32 | 58.7 | 95.8 | 112.1 |
| FFH | Fairfax Fin. Hold. | 248.0 | 4,232.0 | 7,757.7 | 0.57 | 14.18 | -32.18 | 21.4 | 42.7 | 87.9 |
| PKI.U | Parkland Incm Fd | 42.7 | 485.9 | 1,199.9 | 0.46 | 4.57 | 2.03 | 17.7 | 23.1 | 81.5 |
| AGA | Algoma Steel Inc. | 55.3 | 1,772.3 | 1,939.7 | 1.04 | 6.10 | 6.04 | 53.7 | 71.6 | 66.7 |
| CKI | Clarke Inc. | 17.6 | 223.9 | 182.1 | 1.25 | 1.33 | 1.32 | 18.9 | 45.0 | 57.1 |
| ARE | Aecon Group Inc. | 9.3 | 357.0 | 1,113.3 | 0.29 | 0.33 | -0.16 | 10.1 | 39.8 | 57.1 |
| TRZ.B | Transat A.T. Inc. B | 36.6 | 1,168.9 | 2,734.5 | 0.45 | 1.85 | 1.66 | 11.1 | 34.0 | 51.1 |
| FGL | Forzani Gr. Ltd. A | 22.9 | 773.6 | 1,264.0 | 0.60 | 1.06 | 0.42 | 18.8 | 35.5 | 50.7 |
| GLC.U | Gt. Lakes Carbn | 14.0 | 525.9 | 510.5 | 1.03 | 1.05 | 0.80 | 19.3 | 39.5 | 50.1 |
| CGO | Cogeco Inc. | 40.6 | 598.6 | 829.7 | 0.81 | 1.52 | -1.12 | 11.2 | 53.3 | 48.7 |
| ACO.X | Atco Ltd. I | 52.9 | 2,720.9 | 2,860.9 | 1.10 | 3.48 | 2.49 | 11.2 | 28.2 | 47.2 |
SOURCE: COMPUSTAT
Scott Adams