Enterprising Investor Forum

Value Blue Chip Screen Friday, July 13, 2007

The term ‘Blue Chip’ comes from the blue-colored poker chips which are typically the most valuable. Generally speaking, Blue Chip companies are well-established, have stable earnings and do not have extensive liabilities.

The main purpose of this screen is to give you some criteria to help you find a short-list of the best Blue Chip Stocks for new money now.

Here are some initial criteria that you can add to:

• Membership: Dow Jones or S&P500 index.

• Performance: Return on Equity above industry average.

• Growth: Est. EPS Growth next 5 years above Current Earnings Est.

• Liquidity: Current Ratio over 1.

• Strength: Debt-to-Equity Ratio below industry average

• Trading: near 52-Week Low.

Naturally, we are looking at companies in very different industry sectors and that is why, where possible, we propose to compare against the industry average. Furthermore, please remember that especially due to the fact that we added ‘Trading near 52-Week Low’ as a final criteria – to allow us to find out of favor stocks – you have to carefully conduct your desk research as some negative recent developments could be rightly depressing the stock price and possibly drive it down even further.

When we ran the screen without any additional criteria, Johnson & Johnson was ranked in 3^rd place. To read what we think of JNJ, please click here.

Good Screening!

Value-Growth Screen Wednesday, July 11, 2007

We have decided to start to post a series of screening criteria to give readers some ideas when looking for interesting investing opportunities. The purpose of these ‘screens’ is to not to give you a final and preset ‘screen’ but to propose an initial foundation to build on and add your own input.

This first post is aimed at trying to identify ‘value’ Small-Caps with growth potential:

• Small-Caps tend to have higher rates of returns, growing faster than large-cap companies and typically using profits for expansion rather than to pay dividends. We will only take into account companies whose market value is between 500 million and 1 billion USD.

• Low P/E ratio firms tend to produce higher returns. We will only take into account P/E ratios under 17.

• Socks that are cheaper relative to their book value tend to earn higher total returns. We will only take into account P/B ratios equal or under industry average.

• Rerun on Equity, 5-year average over 15%. This is an important profitability ratio to ensure a strong track record. On top of this, for future profitability expectations: Earnings per Share (EPS) growth for the next 5 years of at least 15%.

• Last but not least, to take into account financial leverage, a Debt to Equity ratio equal or under the Industry Average.

Furthermore, if you are using the MSN Money Deluxe Stock Screener, you can also add the MSN rating as an additional parameter to look through the companies that come up in your screen. Hopefully, this will give you a good place to start.

Good Screening!