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40 Value Stocks With Price Momentum - 26608 views
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. January's list of 19 stocks returned an average of 2.68% for the top five stocks on the list vs. 2.03% for SPDR S&P 500 (SPY). The entire list of 19 stocks last month returned an average of 0.11%, led (now two months in a row) by Varian Semiconductor (VSEA) at 14.35% and Netease.com (NTES) at 12.07%.
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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.
A whopping 40 stocks qualified for this month's list, a new high. 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 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. To avoid major drawdowns, an investor either could abandon this type of strategy entirely when the S&P 500 or another major index is below a long-term moving average, or could hedge positions with a position in ProShares Short S&P500 (SH) or use short option strategies on an equity index or ETF like 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 .5% slippage. Returns calculated by stockscreen123:
Once again, Metropolitan Health Networks (MDF) is near the top of the list, but it's no longer ranked first, supplanted by Applied Industrial Technologies (AIT). Apple (AAPL), Mastercard (MA), Google (GOOG) and Intel (INTC), a new addition this month, are other well-known companies on this month's list.
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, the 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.