Value Stocks with Price Momentum

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I update the following portfolio/screen on a monthly basis on Scott's Investments. January's list of 19 stocks is here and returned an average of 2.68% for the top 5 stocks on the list versus 2.03% for SPY. The entire list of 19 stocks last month returned an average of .11%, led (now 2 months in a row) by Varian Semiconductor (VSEA) at 14.35% andNetEase.com (NTES) at 12.07%.

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% 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 use short option strategies 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, 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.

No positions in stocks mentioned

Ticker	Name	Trend	Rank	PEG LT	ROE% 5YAvg	ROI% 5YAvg
AIT	Applied Industrial Technologi	Here	99.56	0.82	15.4	12.47
MDF	Metropolitan Health Networks,	Here	99.25	0.82	19.21	19.01
LRCX	Lam Research Corporation	Here	99.05	0.91	20.8	17.78
FCFS	First Cash Financial Services	Here	96	0.69	19.03	15.98
INTC	Intel Corporation	Here	94.24	0.89	16.28	14.96
SHOO	Steven Madden, Ltd.	Here	93.91	0.82	20.13	19.63
CBI	Chicago Bridge & Iron Company	Here	93.79	0.98	18.46	13.16
TRCR	Transcend Services, Inc.	Here	93.12	0.83	23.39	21.83
ASF	Administaff, Inc.	Here	92.09	0.69	16.52	13.25
LECO	Lincoln Electric Holdings, In	Here	92.07	0.94	17.24	13.35
EZPW	EZCORP, Inc.	Here	91.3	0.68	20.36	19.63
AAPL	Apple Inc.	Here	90.78	0.78	31.92	28.48
DTV	DIRECTV	Here	90.54	0.55	30.78	12.76
NTES	NetEase.com, Inc. (ADR)	Here	87.58	0.67	32.24	30.68
GIL	Gildan Activewear Inc. (USA)	Here	87.4	0.88	18.33	17.19
MA	MasterCard Incorporated	Here	87.3	0.72	29.76	22.24
AZO	AutoZone, Inc.	Here	85.93	0.98	646.25	24.99
FOSL	Fossil, Inc.	Here	85.62	0.85	16.07	15.34
PPDI	Pharmaceutical Product Develo	Here	84.55	0.88	15.3	14.51
SNHY	Sun Hydraulics Corporation	Here	83.88	0.18	19.58	18.03
CLC	CLARCOR Inc.	Here	83.8	0.95	14.31	12.2
DECK	Deckers Outdoor Corporation	Here	82.59	0.78	24.8	24.7
NVEC	NVE Corporation	Here	77.57	0.84	23.98	23.98
CRR	CARBO Ceramics Inc.	Here	77.53	0.85	14.4	13.55
BIDU	Baidu.com, Inc. (ADR)	Here	76.8	0.56	43.86	43.68
ALGN	Align Technology, Inc.	Here	76.02	0.77	12.73	12.67
GOOG	Google Inc.	Here	72.72	0.8	20.13	19.46
GSOL	Global Sources Ltd. (Bermuda)	Here	72.46	0.71	16.7	17.49
SEIC	SEI Investments Company	Here	71.63	0.96	27.44	30.91
GNTX	Gentex Corporation	Here	71.06	0.95	13	12.6
GA	Giant Interactive Group Inc (	Here	66.65	0.95	19.8	19.75
TNDM	Neutral Tandem Inc.	Here	66.45	0.9	17.49	14.09
FSLR	First Solar, Inc.	Here	66.17	0.67	24.29	21.62
AVAV	AeroVironment, Inc.	Here	66.03	0.82	14.54	14.15
VLTR	Volterra Semiconductor Corpor	Here	65.86	0.79	15.44	15.25
BWLD	Buffalo Wild Wings	Here	64.59	0.84	15.86	13.7
SCSS	Select Comfort Corp.	Here	62.47	0.87	34.11	24.68
MASI	Masimo Corporation	Here	61.4	0.92	35.29	41.65
ANF	Abercrombie & Fitch Co.	Here	59.6	0.75	23.39	18.24
ESV	ENSCO PLC	Here	49.79	0.76	19.31	16.62

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