19 Low PEG Momentum Trades

I update the following portfolio/screen on a monthly basis on Scott's Investments. December's list of 19 stocks is here and returned an average of 3.47% for the top 5 stocks on the list versus 3.63% for SPY. The entire list of 19 stocks last month returned an average of 2.59%, led by Varian Semiconductor (VSEA) at 13.73% and InterDigital (IDCC) at 13.45%. The previous month IDCC was the leader of the pack, returning 26.58%.

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.

This strategy of screening stocks has produced stellar returns since this summer. For example, August's list returned a whopping 16.17% versus 7.87% for SPY and July's top 5 stocks returned over 19%.

The rational 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. Strategies an investor could use to avoid major drawdowns would be to either a) abandon this type of strategy entirely when the SP 500 or another major index is below a long term moving average, or b) hedge positions with a position in SH or write a short option strategy on an equity index or ETF like SPY.

Below are 1 and 5 year test results if an investor were to invest in the top 5 stocks in this screen every 4 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 is no longer ranked first, supplanted by Applied Industrial Technologies (AIT). Apple, AAPL, remains on this month's list. Two new additions of note for this month are three well known companies, Mastercard (MA), Google (GOOG), and First Solar (FSLR).

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.

No positions in stocks mentioned

Ticker	Name	Trend	Rank	PEGLT	ROE%5YAvg	ROI%5YAvg
AIT	Applied Industrial Technologi	Here	99.45	0.98	15.4	12.47
MDF	Metropolitan Health Networks,	Here	99.31	0.76	19.21	19.01
LRCX	Lam Research Corporation	Here	98.42	0.91	20.8	17.78
AMAT	Applied Materials, Inc.	Here	98.3	0.83	12.91	12.11
FCFS	First Cash Financial Services	Here	95.85	0.95	17.74	14.63
VSEA	Varian Semiconductor	Here	94.22	0.61	15.09	13.83
NTES	NetEase.com, Inc. (ADR)	Here	93.47	0.82	36.62	32.93
AAPL	Apple Inc.	Here	92.82	0.74	31.92	28.48
JOSB	Jos. A. Bank Clothiers, Inc.	Here	89.2	0.91	21.54	17.83
TSRA	Tessera Technologies, Inc.	Here	88.45	0.74	12.46	12.27
AZO	AutoZone, Inc.	Here	87.84	0.98	646.25	24.99
IDCC	InterDigital, Inc.	Here	85.23	0.77	50.36	23.34
SNHY	Sun Hydraulics Corporation	Here	84.1	0.18	19.58	18.03
QCOR	Questcor Pharmaceuticals, Inc	Here	82.22	0.95	48.3	45.63
NVEC	NVE Corporation	Here	80.95	0.82	23.98	23.98
CTCM	CTC Media, Inc.	Here	76.86	0.37	17.27	16.96
FSLR	First Solar, Inc.	Here	75.87	0.85	25.72	22.83
GOOG	Google Inc.	Here	72.65	0.8	20.13	19.46
MA	MasterCard Incorporated	Here	67.82	0.96	24.18	16.42

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