The following commentary comes from an independent investor or market observer as part of TheStreet’s guest contributor program, which is separate from the company’s news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

NEW YORK (Scott's Investments) -- I update the following portfolio/screen on a monthly basis on Scott's Investments. The top 10 rated stocks from February's list of 40 stocks returned an average of 3.47% vs. -1.14% for SPY. The entire list of 40 stocks last month returned an average of 2.50%, led by First Cash Financial Services (FCFS) at 20.89%.


More From Stockpickr

  • Debt-Free Stocks Selling Near Cash
  • 35 Growing Dividend Stocks With Low P/E Ratios
  • 3 Stocks With Bullish Technical Setups
  • ----------------------------------------------------------

    The screen looks for the following:

    • earnings growers still reasonably priced as judged by the PEG ratio
    • low debt
    • a history of high return on equity and investment, and
    • 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.

    36 stocks qualified for this month's list. Just as in last month, this tells us individual stock momentum still exists in the market and the fundamental factors on the list are easy to find among the high momentum stocks.

    This strategy of screening stocks has produced solid returns since this summer. For example, August's list returned 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, low 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 abandon this type of strategy entirely when the S&P 500 or another major index is below a long term moving average, or hedge positions using one of the methods I profiled here.

    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 writing, 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.