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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 fifth 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. Last month's list returned an average of -4.38% versus -2.26% for VBR over the same period.

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'." One additional option which I have mentioned on other screens is to abandon this type of strategy when an underlying index such as the Russell 2000 is trading below a long term moving average such as the 200 day moving average. Currently the Russell 2000 is below its 200 day moving average.

Ticker Name Last Rank
ESCA Escalade, Inc. 5.05 98.46
HAST Hastings Entertainment, Inc. 7.37 94.35
SGMA SigmaTron International 5.69 92.63
AHC A. H. Belo Corporation 6.62 92.11
RCKY Rocky Brands, Inc. 7.67 89.93
FLXS Flexsteel Industries, Inc. 13.4 89.43
PTSI P.A.M. Transportation Service 11.29 84.34
CGL.A Cagle's, Inc. 6.55 81.28
GRB Gerber Scientific, Inc. 5.03 79.82
MPAA Motorcar Parts of America, In 6.94 78.89

Disclosure: None

Source: 10 Micro Cap Value Stocks to Consider