I've recently featured some value screens for stocks. I decided to see how the criteria held up over the past few years by running a backtest using StockScreen123. The criteria I backtested were:
Price to Book < 1
Return on Equity Last 12 Months > 0
Return on Assets Last 12 Months > 0
Total Debt to Equity < 40%
Current Ratio > 3
Price to Free Cash Flow Trailing 12 Months < 15
Projected Earnings Next Fiscal Year > 0
No OTC Stocks
I assumed .5% slippage and rebalanced every 4 weeks. The summary of the first results are below, with $100 starting on 1/1/2002 using the strategy turned into $675.99 while $100 in the S&P 500 lost value, ending in $98.12 (excluding dividends). This backtest is not meant to be a comprehensive study, but does give one an idea of the possibilities of well-defined strategies. I am not implying this is the best value screen available but it does show promise.
The starting timeframe of a study can greatly impact how the results are perceived. As you can by the first graph below, 2008 was not a good year for the market or for the screen. However, as you can in the bottom graph (12/28/07-12/28/09) even in the worst period for the screen since 2002, it kept pace with a bearish market. Admittedly, this is not much of a consolation when your drawdown approaches 50%. I will offer two possible strategies in tomorrow's article for how to avoid such a significant drawdown.
One significant drawback of the screen is that while the average number of positions is 10 stocks, during 2008 there were periods where the number of qualifying companies was as high as 77. In addition, turnover can create additional tax burdens and trading costs will reduce returns. However, stay tuned for a follow-up article tomorrow on some different strategies to a) limit or rank the number of stocks, and b) some additional filters for risk-averse investors.
The current stocks meeting the criteria are at the bottom of the article (return data based on a rebalance on 12/21/09. No stock position disclosures
| #Pos | AvgRet% No Slip | $SP500 Ret% | Excess Ret% | $100 Investmt | $100 in $SP500 | Turnover% | Min % no slip | Max % no slip | StdDev Ret% | ||
| Average | 10 | 2.26 | 0.13 | 2.14 | 675.99 | 98.12 | 32.81 | -11.54 | 19.95 | 10.97 | |
| Up Markets | 63 | 9 | 6.49 | 3.18 | 3.31 | 32.58 | -7.44 | 25.77 | 11.88 | ||
| Down Markets | 42 | 11.4 | -4.07 | -4.45 | 0.38 | 33.15 | -17.68 | 11.23 | 9.61 |
| 12/28/2009 | ||||||
| Ticker | Name | Free Trend Analysis | Start | End | Ret (%) | MktCap |
| SPAR | Spartan Motors, Inc. | Here | 5.12 | 5.34 | 4.3 | 167.69 |
| SIGM | Sigma Designs, Inc. | Here | 10.87 | 11.08 | 1.93 | 290.69 |
| NWPX | Northwest Pipe Company | Here | 25.21 | 28.66 | 13.69 | 232.85 |
| HOTT | Hot Topic, Inc. | Here | 5.66 | 6.41 | 13.25 | 254.7 |
| ACET | Aceto Corporation | Here | 5.07 | 5.27 | 3.94 | 125.63 |
| AOB | American Oriental Bioengineer | Here | 4.28 | 4.37 | 2.1 | 333.65 |
| MATK | Martek Biosciences Corp. | Here | 18.42 | 19.09 | 3.64 | 606.28 |
| DIVX | DivX, Inc. | Here | 5.24 | 5.23 | -0.19 | 171.42 |
| CRDN | Ceradyne, Inc. | Here | 18.38 | 18.6 | 1.2 | 470.98 |
| LAKE | Lakeland Industries, Inc. | Here | 7.95 | 8 | 0.63 | 43.5 |
| INET | Internet Brands, Inc. | Here | 7.69 | 7.8 | 1.43 | 345.94 |
| OPTV | OpenTV Corp. | Here | 1.42 | 1.38 | -2.82 | 196.1 |
| ALG | Alamo Group, Inc. | Here | 16.08 | 15.87 | -1.28 | 183.13 |
| QLTI | QLT Inc. (USA) | Here | 4.74 | 5.09 | 7.38 | 259.5 |
