Stock Quotes in this Article: AIT, MDF

NEW YORK (Scott's Investments) -- I update the following portfolio/screen on a monthly basis on Scott's Investments. December's list of 19 stocks returned an average of 3.47% for the top five stocks on the list vs. 3.63% for SPY. The entire list of 19 stocks last month returned an average of 2.59%, led by Varian Semiconductor (VSEA) at 13.73% and InterDigital (IDCC) at 13.45%. The previous month, IDCC was the leader of the pack, returning 26.58%.

The screen looks for the following:

  1. earnings growers still reasonably priced as judged by the PEG ratio
  2. low debt
  3. a history of high return on equity and investment
  4. price momentum as gauged by the percentage the stock is trading to its 250-day high

 

The stocks are then ranked based on fundamental factors as compiled by stockscreen123.

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    This strategy of screening stocks has produced stellar returns since this summer. For example, August's list returned a whopping 16.17% vs. 7.87% for SPY, and July's top five stocks returned over 19%.

    The rationale for this screen is based on backtests showing that stocks with low PEG ratios, debt and high returns on equity and price momentum have produced good historical returns. The screen has tested well historically in bullish periods and has suffered during significant market drawdowns. Strategies an investor could use to avoid major drawdowns would be to either a) abandon this type of strategy entirely when the S&P 500 or another major index is below a long-term moving average, or b) hedge positions with a position in ProShares Short S&P500 (SH) or write a short option strategy on an equity index or ETF such as SPDR S&P 500 (SPY).

    Below are one- and five-year test results if an investor were to invest in the top five stocks in this screen every four weeks. Test results exclude commissions and dividends but include 0.5% slippage. Returns calculated by stockscreen123:

     

    Once again, Metropolitan Health Networks (MDF) is near the top of the list, but it is no longer ranked first, supplanted by Applied Industrial Technologies (AIT). Apple (AAPL) remains on this month's list. Three new additions of note for this month are well-known companies, MasterCard (MA), Google (GOOG) and First Solar (FSLR).

    Two possible tools an investor could use to conduct this screen on his/her own are stockscreen123 or Finviz. This screen was conducted using stockscreen123. For the full list of stocks and real-time results, please see the right hand side of Scott's Investments.

    At the time of publication, author had no positions in stocks mentioned.


    Scott's Investments, focuses on consolidating and tracking free online investment resources for the public with an emphasis on ETFs, portfolio/trading strategies and macroeconomics. Follow Scott's Investments on Twitter.