Disciplined Fishing (Continued)

Stock Screen, by Mark Robertson, Managing Partner July 1st, 2013

In last month’s cover story, we shared a screening discipline used by Hugh McManus that enforces a routine of identifying stocks hovering near a selected low price.

In last month’s cover story, we shared a screening discipline used by Hugh McManus that enforces a routine of identifying stocks hovering near a selected low price (generally the 52-week low with allowances for multi-year lows for higher growth stocks.) In his experience, most long-term investors become quite effective at identifying high quality companies. The problem is often the price at the time of purchase. Noting that the 52-week low is very often 50% less than the 52-week high for scores of companies … he argues that it makes sense to be vigilant for opportunities hovering near those selected low prices.

Market Expectations (6/28/2013). The median projected annual return (MIPAR) for all 2400+ stocks followed by MANIFEST (Solomon database) is 6.8%. The multi-decade range for this indicator is estimated at 2-20% with an average of 8.5%.

Companies of Interest

With the median return forecast hovering near historical lows, we continue to suggest the quest for the highest quality companies — and have accordingly limited the field to candidates with financial strength ratings of at least “A” and a quality ranking greater than 80 (Excellent).

Caterpillar (CAT) was chosen by Hugh McManus during the June Round Table webcast as a repeat selection. Hugh noted that economic weakness in China continues to inhibit the stock, a condition he embraces while accumulating a stock near its 52-week low.

As shown here, CAT is 4.9% above its low over the last 52 weeks and sports an “A+”/83 combination with a projected annual return of 11-12%, comfortably above the median return forecast.

Recent Solomon Select feature C.H. Robinson (CHRW) and related Expeditor’s International (EXPD) rank fairly highly among these results and could be a worthy industry study.

Cy Lynch chose Infosys Tech (INFY) competitor Cognizant Technology (CTSH) during the Round Table session. CTSH just missed this list. Echoing what we said last month, a healthier global economy would bode well for all of these.

Screening Results (6/30/2013). Companies ranked by position relative to selected low price (descending). Minimum financial strength rating >= A. Quality Ranking > 80. PAR > MIPAR. The selected low price (1-yr, 3-yr or 5-yr) depends on the sales growth forecast. Sources: Manifest Investing, Value Line Investment Analyzer

Mark Robertson

Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.