WHAT ARE WE LOOKING FOR?
Today we provide another stock screen generated by the Nasdaq Guru Screener (nasdaq.com/reference/guru.stm), a free online screening tool that identifies U.S. stocks that most closely match the investing strategies of some of the top investment authors and commentators in the United States. The tool was first developed by investment newsletter/website Validea.com, which maintains model portfolios based on the screens.
Today's screen is the Validea Momentum Strategy Screen - Validea's own interpretation of how to put to work the investing philosophy contained in How to Make Money in Stocks, written by William O'Neil.
Mr. O'Neil, whose investing career began 50 years ago, was just 30 years old when he bought a seat on the New York Stock Exchange and founded his own brokerage firm, William O'Neil & Co., in 1963. In 1984, he launched Investors Business Daily, a national daily business newspaper. His How to Make Money in Stocks was the top-selling investment book of 1988.
The key premise to Mr. O'Neil's strategy is that stocks on the rise have the best chance of continuing to rise - a theory borne out by the book's painstaking analysis of the 500 best growth stocks over a 30-year period. As a result, the strategy hinges on relative strength - which measures a stock's performance relative to all other stocks. This approach is meant to weed out low-priced stocks that are trading at their lows for good reason - some fundamental weakness in the stock's story - and instead focuses on high-quality companies that trade at a premium, but stand to appreciate even more.
Once the relative-strength hurdle is cleared, the strategy moves on to look at other indicators of quality, such as consistently growing earnings, falling debt-to-equity ratios, and high return on equity, among a host of other factors.
The Validea Momentum portfolio has produced returns of 59 per cent since its July, 2003, inception, beating the S&P 500's returns of 35 per cent over the same period.
The top-ranked stock generated by the screen is Credicorp Ltd., a financial services holding company with interests in Peruvian banking. The stock has a relative strength score of 91, meaning it has outperformed 91 per cent of the market over the past year. Credicorp also receives high marks for its strong earnings growth (and average annual rate of 34 per cent over the past five years).
Readers who have been following our Guru Screener series over the past two weeks will recognize Credicorp. It also came out on top of the Motley Fool screen, which focuses on low price/earnings-to-growth (PEG) ratios to ferret out undervalued stocks, and was near the top of yesterday's Martin Zweig screen, which seeks stocks with stable, long-term earnings growth.
This observation leads us to a question: Are there stocks that look good no matter which guru you follow? We'll have the answer tomorrow, as we turn to the Nasdaq Guru Screener's tool for identifying "fundamentally sound" stocks - those that pass the tests of multiple gurus.
Nasdaq Guru Screener - William O'Neil - Validea Momentum Strategy
|Ticker||Company name||Guru quant score||Price $US Feb. 11||Market cap ($US-mil)||Relative strength||P/E||PEG|
|TNE-N||Tele Norte Leste||100%||23.93||9,144||95||8||0.3|
|XOM-N||Exxon Mobil Corp.||89%||83.22||447,890||80||11||0.4|
|FLO-N||Flowers Foods Inc.||89%||24.59||2,264||86||24||1.2|
|CADA-Q||CAM Commerce Sol.||89%||41.03||169||93||37||0.8|
|DKS-N||Dick's Sporting Gds||89%||33.40||3,708||87||26||1.1|
|BTM-N||Brasil Telecom SA||89%||29.49||5,380||96||11||0.1|
|ABHH-Q||Am. Bk Note Holog.||89%||7.00||136||97||27||0.6|
|SCND-Q||Scientific Indus. Inc.||89%||3.70||4||87||11||0.4|