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I have begun conducting the following screen on a monthly basis. Early out-of-sample results have been positive, especially during bullish environments. May's list is here, April's list is here, March's list is here, February's list is here and January's here. 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.
January's list returned 1.39% vs .57% for SPY. February's list returned a solid 11.78% vs. 6.77% for SPY. March returned 7.91% vs. 4.23% for SPY, April was a tough month returning -11.57% vs -11.52% for SPY, and May's list returned -6.55% vs -.56% for SPY. One note on May's list is that due to the pullback in the market there were very few stocks that qualified for the list, four in total.

When the screen results in more than 10 stocks I have also started tracking returns of the top 10 stocks at the beginning of each list, the top 10 are selected based on fundamental factors. The top 10 on March's list returned an average of 10.77% and the top 10 for April did slightly better than the entire list returning -8.01%. This month has less than 10 qualifying stocks. For the full list of stocks and results, please see the right hand side of Scott's Investments.

The screen has tested well historically in bullish periods so strategies an investor could use to avoid drawdowns would be to either:
  1. abandon this type of strategy entirely when the S&P 500 or another major index is below a long term moving average, or
  2. hedge positions with a position in SH or write a short option strategy on an equity index or ETF like SPY.

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.


Ticker Name Trend Analysis Last MktCap Industry
MDF Metropolitan Health Networks, Here 3.99 159.26 Healthcare Facilities
ARO Aeropostale, Inc. Here 29.62 2770.17 Retail (Apparel)
UTI Universal Technical Institute Here 24 578.8 Schools
FCFS First Cash Financial Services Here 21.93 660.34 Retail (Specialty)
DECK Deckers Outdoor Corporation Here 155.05 1999.68 Footwear
LRCX Lam Research Corporation Here 40.25 5092.99 Semiconductors
QCOR Questcor Pharmaceuticals, Inc Here 11.24 697.39 Biotechnology & Drugs

Disclosure: No positions in stocks mentioned

Source: Top Stocks Based on PEG and Momentum