Bill Rempel, a.k.a. NO DooDahs!

In the most recent versions of my stock screens, I defined many of the variables in ways that are causing me some minor inconveniences. Due to my longstanding mental biases and preconceptions, I will confine my discussion and screening to non-OTC stocks.

One frustrating item is the tendency of stocks to float in and out of qualifications based on price action, which has occurred with Everlast (EVST) fading in and out of the “within 15% of the 52-week high” qualification. When a stock goes off the Growth or GARP list, I want to know why, and I spend some time looking for the reason when it often is just chart action. If I eliminate such technicals from these screens, I can then focus on their fundamentals for inclusion on the watchlist. Speaking of the fundamentals, I used relative terms, which is allowed at my broker’s screener, and that causes another frustration. For example, a quarter-to-quarter EPS growth in the top 20% of all companies was the variable used, instead of a hard-coded minimum number. One thing that I have noticed is, in practice, companies may fall in and out of the screener if they are near the cutoff, even though their EPS growth hasn’t changed, because the population shifts (sometimes a lot!) during earnings season. To some degree, a top 20% is just as arbitrary as a hard-coded number, but the floating in and out based on the action of other stocks is frustrating.

In both the “2007 Growth” and “2007 GARP” screens, I looked for EPS growth Last Qtr. vs. Same Qtr. Prior Yr and Last TTM vs. Prior TTM in the top 20% of the population. Today, those two criteria net 420 stocks, and the minimum quarter-to-quarter growth that meets is approximately +50% and the minimum year-to-year that meets is approximately +70%. A change to these hard-coded numbers would eliminate floating based on population shift. Of course, it would introduce a phenomenon of drastically in(de)creased numbers of stocks meeting criteria based on earnings trends, but at least the ones that met would stay in the group.

The GARP screen uses revenue growth as a filter. Just checking the top 20% in quarter-to-quarter and year-to-year growth nets too many stocks to display, so if I check the revenue minimums of stocks that meet the top 20% in both EPS categories, I get +33% minimums for both timeframes, I’ll probably (arbitrarily) round up to 35%.

The GARP screen also uses Net Insider Buying as a filter, with a requirement that it be in the top 80% of all companies, which actually allows for a bit of selling. According to the numbers I checked today, 1694 of 6947 non-OTC stocks had no net insider selling, which would make a requirement of Net Insider Buying greater than or equal to Zero a tougher criteria, about top twenty-fourth percentile.

If I combine the absolute numbers above as substitutes with a “Between 5 and 30″ P/E requirement, ignoring for a moment the momentum requirement on the GARP screener, then I net 17 stocks, many of them familiar, some of them not. Nice. Ignoring the one fundatechnical characteristic of P/E, I get 27 stocks, which is too many to watch when you consider this is one part of a whole. I’ll leave it in.

The Growth screener currently uses the same quarter-to-quarter and year-to-year growth requirements on EPS that GARP does, but differs in (1) adding a longer-term EPS growth requirement, (2) not caring about P/E, (3) not caring about revenue growth, (4) not caring about insider buying, (5) focusing on different measures of technical strength, (6) having volume minimums, and (7) focusing on institutional ownership and accumulation. Ignoring the volume minimum, and looking at the 426 stocks that meet +50% QtoQ and +70% YtoY EPS growth, I want to examine hard-coded substitutes for the institutional requirements, and then give some thought to the longer-term growth requirement.

Originally I had looked at institutional accumulation in the top 60% of the market. My screener maintains that +2.0% is the market median, meaning that the top 60% would allow for below that. It turns out that +2.0% is about the median (215 of 426) for this high-earning group, as well. I had to go all the way to +15% to get it into the top quartile of the EPS growth population. Taking that +15% accumulation and applying what my screener says is the median institutional ownership of 37.5%, I net 36 stocks. Going all the way down to a maximum current institutional ownership of 20%, I net only 20 stocks. Making that maximum 15% gets rid of only 3 of those stocks, leaving me with 17 on this screen, only a couple of which are familiar. Interesting. This alteration is a dramatic shift to smaller companies.

Note that I have left out any longer-term EPS growth requirement. At the moment, I think that I could be missing a big chunk of movement by requiring higher long-term EPS growth, and in order to catch the stocks earlier in any potential moves, I will look no further than a year back in earnings growth.

The Value screener has a couple of differences from the Growth and GARP screeners. First, I think the technical requirement of eliminating peaking cyclical stocks is important. Second, my intention is to leave Value stocks on the watchlist for a long time, so it’s OK if it passes me only a half-dozen or fewer stocks on any given occasion. Third, I like to have a slightly longer-term view of book growth as a criterion, just to provide an additional measurement of the company’s quality. If I were to take my traditional Value criteria of TTM P/E less than or equal to 12, Price/Book less than or equal to 2, ROA greater than or equal to 5%, Debt/Equity less than or equal to 2 (equivalent to a Debt/Capital of 67% or less), and no price appreciation in the last 52 weeks, I would get 60 stocks. When I add specifications that the 5-year Book growth should be at least 5% and that EPS can’t be falling on a QtoQ or YtoY basis, it nets 9 stocks. Adding a final specification that insiders can’t be selling on a net basis narrows the field to 4 stocks, 3 of which are on the existing “valudar.”

Modified 2007 GARP

This is an alternative interpretation of Martin Zweig’s criteria, without the momentum criteria.

Exchange: Non OTC,
P/E (TTM Intraday): Greater than 5, Less than 30,
EPS Gwth. (Last Qtr. vs. Same Qtr. Prior Yr): Greater than or equal to 50%,
EPS Gwth. (Last TTM vs. Prior TTM): Greater than or equal to 70%,
Rev. Growth (Last TTM vs. Prior TTM): Greater than or equal to 35%,
Rev. Gwth. (Last Qtr. vs. Same Qtr. Prior Yr): Greater than or equal to 35%,
Net Insider Shares Bought: Greater than or equal to zero shares,
Price Perf. (Last 52 Wk): no requirement.

Modified 2007 Growth

This is an alternative interpretation of a CANSLIM screen, without the price action criteria. My broker’s screener doesn’t have screening for float size, but ideally I would limit this list to low-float companies.

Exchange: Non OTC,
EPS Gwth. (Last Qtr. vs. Same Qtr. Prior Yr): Greater than or equal to 50%,
EPS Gwth. (Last TTM vs. Prior TTM): Greater than or equal to 70%,
Percentage off 52 Wk High: no requirement,
Price Perf. (Last 52 Wk): no requirement,
EPS Growth: 5-Yr Hist.: no requirement,
Percentage of Inst. Ownership (Last vs. Prior Qtr.): Greater than or equal to 15%,
Vol. (90-Day Avg.): no requirement,
Percentage of Inst. Ownership: Less than or equal to 15%.

Modified 2007 Value

This is an another adaptation of my traditional “value” screen. Additionally, I might remove candidates from the list for having Net Income that exceeds Operating Cash, or for having excessive inflows of Financing Cash relative to Assets.

Exchange: Non OTC,
Book Value Growth (5-Yr Avg.): Greater than or equal to 5%,
EPS Gwth. (Last Qtr. vs. Same Qtr. Prior Yr): Greater than or equal to zero,
EPS Growth (Last TTM vs. Prior TTM): Greater than or equal to zero,
Debt to Capital: Less than or equal to 67% (approximately 2.0 Debt/Equity),
Net Insider Shares Bought: Greater than or equal to zero shares,
Price Perf. (Last 52 Wk): Less than or equal to +0%,
P/E (TTM Intraday): Less than or equal to 12,
Price/Book Ratio: Less than or equal to 2.0,
Ret. on Assets (TTM): Greater than or equal to 5%.

My purpose and usage of these screens is simple; I want to identify trends and grab the stocks, and hold on loosely (but don’t let go) as long as they are trending. I would anticipate the values are heading down and I would be looking for a bottoming; the Growth and GARP I would anticipate are heading up, and I would be looking for a good entry.

There is a lot of overlap between these screens and their precedents, which is as it should be. Hopefully the use of hard-coded requirements instead of relative terms, and the removal of technical requirements from the Growth and GARP screeners, will make the screener output more stable over time. Also, hopefully the elimination of 5-year EPS growth from the Growth screener will deploy some fresher stocks to that screener. We shall see!