What are we looking for?
This week, as a followup to last week's Canadian screen, we highlight U.S. stocks with strong price and earnings momentum.
The screen
Specifically, I scanned the CPMS U.S. database for the 20 stocks with the best combination of the following metrics:
– Percentage change from stock's 12-month high (where stocks closer to their 12-month high are favoured);
– Price momentum over the past three months;
– Consensus earnings estimate revisions over the past 30 and 90 days (the 90-day earnings revisions must not be negative);
– Trailing earnings yield (trailing four quarters' earnings per share as a percentage of the latest price);
Stocks with less than $2-million (U.S.) in average daily volume were excluded to remove the most illiquid names.
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.
With more than 110 equity and credit analysts, Morningstar has one of the largest independent institutional equity research teams in the world.
What we found
I used CPMS to back test the strategy beginning Dec. 31, 1993. The best ranking stocks were selected and equally weighted and each month stocks would be replaced if they fell outside of the top 30 per cent of the database or if earnings revisions fell in the bottom 20 per cent of the database.
Over the 21-year period, the strategy produced an annualized total return of 22.2 per cent while the S&P 500 total return index posted a return of 9.4 per cent.
Craig McGee is a senior institutional account manager of global equity and market data sales at Morningstar Research Inc.