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I am a member of AAII (American Association of Individual Investors) and was recently reading one of their more popular screens, the Shadow Stock Screen. I decided to run my own test of the screen with a few small twists. This is a very simple screen that seeks out small/microcap value stocks. The screen criteria I used are below:

    • No over-the-counter stocks
    • No financial stocks
    • Market cap > $20 Million and <$200 million
    • Previous EBITDA quarter and trailing twelve months are positive
    • Share price > $4
    • Price/book < .80
    • Price/sales < 1.2
    • Top 10 stocks are selected based on highest 52 week returns

This is the third month of performing the screen. The first month's list performed poorly, returning -15.35% versus -13.2% on VBR, the small cap value ETF. Last month's list returned an average of .5% versus 5.84% for VBR over the same period. I also track the returns of the top 5 stocks (based on 52 week returns) and last month's top 5 did somewhat better averaging 3.7%.

I would describe this as a high beta strategy - it performs very well in bullish markets and underperforms in bear markets. I said previously that "I personally am getting a bit squeamish on how much longer we can go without at least seeing a significant pullback in this market, this is not a strategy I am investing in. However, if an investor was looking to add some risk to his or her portfolio, this one could certainly add some 'juice'." My thoughts are similar this month, although we already had a significant pullback as predicted.

The current top 10 stocks as of yesterday are also below. The tool used for the screen is stockscreen123



Ticker Name Free Trend Analysis Last Rank MktCap Industry
ESCA Escalade, Inc. Here 4.85 97.56 61.56 Recreational Products
SALM Salem Communications Corp Here 4.19 97.54 99.73 Broadcasting & Cable TV
SGMA SigmaTron International Here 5.43 93.48 20.76 Electronic Instr. & Controls
HTCH Hutchinson Technology Incorpo Here 4.92 92.52 114.94 Computer Storage Devices
RCKY Rocky Brands, Inc. Here 7.87 85.48 44.12 Footwear
REX Rex American Resources Corp. Here 18.99 85.1 187.17 Chemical Manufacturing
HAST Hastings Entertainment, Inc. Here 7.66 82.01 71.27 Retail (Specialty)
RLH Red Lion Hotels Corporation Here 6.73 76.93 123.86 Hotels & Motels
FLXS Flexsteel Industries, Inc. Here 11.38 74.93 75.59 Furniture & Fixtures
CSV Carriage Services, Inc. Here 4.76 63.91 83.15 Personal Services

Disclosure: No positions

Source: 10 Micro Cap Stocks Worth Considering