Enterprising Investor Forum » Screening Criteria

Screening: Best in Class

ei-forum — Mon, 17 Nov 2008 11:12:38 +0000

In order to have a good basket of stocks that we would be willing to research in detail, we have to make sure that they are in the best possible condition to get through this difficult economic cycle. As with the first time we ran this screen, our aim is to look for and highlight strong players in specific industries – instead of looking across the board, we really wanted to focus on companies that are outperforming and more solid than their competitors.

Keeping the above in mind, we used the MSN Money Deluxe Stock Screener to find companies that are profitable, efficient and not uniquely focused on leverage to fuel their growth:

Return on Equity >/= to Industry Average Return on Equity
Price/Book
P/E Ratio
Income per Employee >/= to Industry Average Income per Employee
Inventory Turnover >/= Industry Average Inventory Turnover
Debt to Equity Ratio
Dividend Payout Latest Fiscal Year >/= Industry Average Dividend Payout Latest Fiscal Year
Net Profit Margin >/= Industry Average Net Profit Margin

And finally, we checked for even more distress, adding:

Previous Day’s Closing Price ‘Near’ 52-Week Low

The only companies to come out where:

Total Systems Services Inc. (TSS) – it provides electronic payment processing and related services to financial and non financial institutions -> Quite a tricky sector to try and understand seeing the possible ramifications of all the different dynamics currently in play.
Microsoft Corp. (MSFT) -> definitely worth looking into.
Norfolk Southern Corp. (NSC) – rail transportation of raw materials, intermediate products, and finished goods primarily in the United States -> Well, pretty straight forwards and despite the slowdown, rail remains a cost effective way to transport goods and we are fairly bullish most operators as we already discussed in the past.

Our feeling is that Microsoft is and will remain a driving force in the tech sector. The main factors that support this view is that they have a dominant position, a good pipe-line and an extremely solid balance sheet… they are bound to emerge from this crisis with an even greater advantage over their competitors.

Please read our disclaimer.

Stock Ideas: P/E Ratio and Dividend Yield

ei-forum — Wed, 05 Nov 2008 14:57:19 +0000

We know that this could be a controversial screen with some of our readers but we still think that it is an interesting way to get some additional names for your short-list to analyze in more detail… at the end of the day, it’s all about trying to find new ideas!

We used the Microsoft Deluxe Screener to pull up all the stocks that have a current P/E Ratio that is lower than the current Dividend Yield. Then we also used the S&P Index Membership filter (as our reader poll was definitely of the idea that the S&P will outperform!) and this is what came up:

United States Steel Corp (X)
Freeport McMoRan (FCX)
Constellation Energy (CEG)
Windstream Corp (WIN)
Embarq Corp (EQ)
Century Tel Inc (CTL)

However, under the current economic circumstances and negative outlook, we need to make sure that our short-list will be able to withstand the storm and therefore, we added the following filters:

Current Ratio equal to or over 1: in order to ensure the immediate financial health and ability to meet current obligations
Debt to Equity Ratio equal or under 1: in order to measure leverage and ensure a not too aggressive financing of growth through debt
MSN Stock rating on over 7: just as an additional check

And we are left with:

United States Steel Corp (X)
Freeport McMoRan (FCX)
Constellation Energy (CEG)

Hmmm, all Energy/Commodity stocks? Not surprising following the recent sell-off in the sector but what about the future? Will the world stop growing? Will developing countries stop developing? Maybe, there might be an interesting opportunity here for the long-term Enterprising Investor ….

Please read our disclaimer.

Screening ideas: Montpelier Re (MRH)

ei-forum — Wed, 19 Mar 2008 12:27:37 +0000

We thought that it was time to post another screen for our readers. Our aim was to try and find interesting companies to research that were trading at a discount to book value, near 52-week lows and that had demonstrated better than average performance in their respective industry.

We ran the follwoing screen on the MSD Delux Screener:

Last price near 52-week low
Price to book between 0.75 and 1
Current P/E Ratio < Industry Average
Debt to Equity Ratio < Industry Average
Net Profit Margin > Industry Average
Return on Equity > Industry Average

… and as you could have guessed by the title of this post and the logo, the number 1 spot was filled by Montpelier Re (MRH).

Montpelier Re is a Bermuda-based reinsurance company founded by White Mountains Insurance and British reinsurance broker Benfield Group in December 2001. The firm’s three product areas are property specialty, property catastrophe for earthquakes and hurricanes, and specialty reinsurance for aviation, sabotage, and marine risks, among others. Property specialty and other specialty products make up about two thirds of sales. Montpelier Re sells its reinsurance via brokers.

Despite conditions not being ideal, MRH is backed by significant capital and should be well placed to tackle the current economic climate. What were the other companies that came up on the screen? Well, here is the whole list:

Montpelier Re (MRH)
Aircastle Ltd (AYR)
CNA Surety Corp (SUR)
Platinum Underwriters Holdings (PTP)
IPC Holdings (IPCR)
PartnerRe (PRE)

Enjoy your research!

Screenig for Best-in-Class

ei-forum — Thu, 06 Sep 2007 13:32:06 +0000

Sometimes, we like to try and highlight strong players in a specific industry and not only search for interesting companies across the board. In order to do this – again, using MSN Money Deluxe Stock Screener – we ran a simple search using criteria against the respective industry average.

We screened for:

Return on Equity >/= to Industry Average Return on Equity
Price/Book
P/E Ratio
Income per Employee >/= to Industry Average Income per Employee
Inventory Turnover >/= Industry Average Inventory Turnover
Debt to Equity Ratio
Dividend Payout Latest Fiscal Year >/= Industry Average Dividend Payout Latest Fiscal Year
Net Profit Margin >/= Industry Average Net Profit Margin

And finally, we checked if any company that met these criteria was being punished by the markets:

Previous Day’s Closing Price ‘Near’ 52-Week Low

To further refine the screen, you can focus on Small, Medium or Large Caps, you can look only at a specific index like the s&P500 or any other angle you wish to explore.

What we found interesting was that one of the companies that companies that come out in the Top 5 was Precision Drilling Trust (PDS). We have been following this company for quite some time and even wrote about it back in June (to read our post please click: here).

Our outlook remains positive, they are paying a very generous dividend and as soon as conditions will become colder, we will see the share price gaining ground once again.

Screening for Investment Ideas

ei-forum — Tue, 04 Sep 2007 15:58:27 +0000

As part of our series on screening ideas, we though that we would focus this post on trying to identify some investment ideas. We used the MSN Money Deluxe Stock Screener but you can run this with pretty much any program.

For the purpose of this post, we started by looking for the New 52-Week Lows on the NYSE. Here are the top 7:

CorpBanca (BCA)
Barclays (BCS)
Chesapeake Corp (CSK)
Capital Senior Living Corp (CSU)
Dillard’s Inc (DDS)
Fidelity National Financial Inc (FNF)
Gottschalks Inc (GOT)

We then wanted to see if any of these candidates were trading close to their Book Value, say screen for equal or under 1,3:

Gottschalks Inc (GOT)
Dillard’s Inc (DDS)
Chesapeake Corp (CSK)
Fidelity National Financial Inc (FNF)

Now let’s see which company is trading at a P/E ratio which is under the respective industry average:

Dillard’s Inc (DDS)
Fidelity National Financial Inc (FNF)

And what about adding a Debt to Equity Ratio under 1? Both stock still come up. So we’ll add a minimum Return of Equity of 10%…. and the finalist is:

Fidelity National Financial Inc (FNF)

Does this mean that you should rush out and buy this stock? No, of course not but this could be a starting point to see if you should investigate further and maybe consider taking a position. We would recommend having a looks at recent news and then recent annual reports if the stock still interests you.

Enjoy your research!

Value Blue Chip Screen

ei-forum — Fri, 13 Jul 2007 09:36:01 +0000

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

ei-forum — Wed, 11 Jul 2007 10:56:02 +0000

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!