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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 fourth 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. The second month beat the benchmark, returning .50% vs .04% on VBR. I also track the returns of the top 5 stocks (based on 52 week returns) and the second month's top 5 averaged 3.70%.

Last month's list returned an average of -7.74% versus -7.15% for VBR over the same period. The top 5 stocks (based on 52 week returns) last month averaged -7.24%.

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 "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 are also below. I update the screen once per month on my site and track the results for free on the right hand side of the site. The tool used for the screen is stockscreen123
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Ticker Name Free Trend Analysis 7/19/10 Close Rank
AHC A. H. Belo Corporation Here 6.62 99.64
ESCA Escalade, Inc. Here 4.31 99.06
SGMA SigmaTron International Here 6.49 98.06
HTCH Hutchinson Technology Incorpo Here 4.59 92.38
ACY AeroCentury Corp. Here 17.98 83.62
HAST Hastings Entertainment, Inc. Here 7.01 83.1
MPAA Motorcar Parts of America, In Here 6.53 82.48
RCKY Rocky Brands, Inc. Here 6.34 81.62
REX Rex American Resources Corp. Here 15.77 79.1
RLH Red Lion Hotels Corporation Here 6.49 72.17

Disclosure: No positions

Source: 10 Micro Cap Stocks to Consider