Value Stocks with Price Momentum

by Scotts Investments, Benzinga Contributor
February 27, 2011 12:40 PM | 16 min read |
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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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