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Technical analysis or fundamental analysis….which is better at equity valuation?

One paper tests the results of combining the two as complimentary instead of being mutually exclusive. The results show a superior valuation model than simply using one or the other. What elements of fundamental and technical analysis were used? (This is in reference to the paper Fundamental and Technical Analysis: Substitutes or Compliments by Bettman, Sault, and Welch, 2006)

  1. Price to book
  2. Price to earnings
  3. Earnings forecast consensus
  4. Momentum

Creating a Fundamental and Momentum Scan

Our goal is to use aspects of this research in creating a forward looking scan to capitalize on both technical momentum and fundamental values. Pertaining to momentum, we will look at forward revisions since these correlate strongly with price momentum (Jegadeesh and Titman 2001). We will look for lower price to book ratios.

Specifically I will scan for:

  • This year’s estimated EPS growth > 15%
  • Price to book less than 1.5
  • 3 month price change 15% or higher (more than S&P 500)
  • Forecast % change in next quarter’s earnings estimate > 20

(If you like to pick stocks based on an increase in analyst forecast, you might also like 12 Stocks Upgraded by Analysts That Hit Their Targets)

Technical and Fundamental List

Ticker

Company

Market Cap

Price

(NYSE:STM)

STMicroelectronics NV

11588.76

12.73

(NYSE:KEY)

KeyCorp

8179.57

9.29

(NYSE:APL)

Atlas Pipeline Partners LP

1534.79

28.79

(NASDAQ:SUSQ)

Susquehanna Bancshares, Inc.

1257.67

9.69

(NYSE:DK)

Delek US Holdings Inc.

606.56

11.15

(NARA)

Nara Bancorp Inc.

387.1

10.19

(NYSE:PIKE)

Pike Electric Corporation

325.25

9.68

(NASDAQ:WCBO)

West Coast Bancorp

324.04

3.36

(NASDAQ:CRBC)

Citizens Republic Bancorp, Inc

317.67

0.8

(NASDAQ:COBZ)

CoBiz Financial Inc

248.3

6.74

(NASDAQ:HAFC)

Hanmi Financial Corp.

198.07

1.31

(NASDAQ:CYNO)

Cynosure, Inc.

172.75

13.71

(NASDAQ:METR)

Metro Bancorp, Inc.

162.77

11.89

(NYSE:TA)

TravelCenters of America LLC

142.54

8.23

(NASDAQ:BNHNA)

Benihana Inc.

140.78

9.1

(KFFG)

Kaiser Federal Financial Group,

130.02

13.6

(MALL)

PC Mall Inc.

123.24

10.16

(NASDAQ:MBRG)

Middleburg Financial Corporation

113.33

16.33

(NASDAQ:FCAL)

First California Financial Group, Inc.

102.82

3.65

(NASDAQ:MCBI)

Metrocorp Bancshares Inc.

92.61

7

(NASDAQ:NEI)

Network Engines, Inc

89.17

2.08

(NYSEMKT:OESX)

Orion Energy Systems, Inc

86.94

3.81

(NASDAQ:VIST)

VIST Financial Corp

58.29

8.94

Future Growth

As reported by FINIZ, this chart will highlight the Price to Sales, Price to Book, EPS growth expected this year, next year, and an annualized amount over the next 5 years.

Ticker

P/S

P/B

EPS growth this year

EPS growth next year

EPS growth next 5 years

(SUSQ)

2.05

0.63

391.04%

71.79%

6.50%

(VIST)

0.91

0.44

302.50%

92.54%

10.00%

(STM)

1.12

1.48

170.63%

13.83%

21.80%

(NEI)

0.36

1.58

146.49%

0.00%

(MALL)

0.09

1.15

129.33%

18.95%

15.00%

(KEY)

2.4

0.74

120.74%

30.16%

4.80%

(FCAL)

1.73

0.52

101.13%

43.48%

15.00%

(WCBO)

3.07

1.19

100.61%

20.00%

8.50%

(APL)

1.66

1.39

99.46%

444.40%

10.00%

(CYNO)

2.11

1.44

75.55%

280.00%

11.00%

(CRBC)

0.66

0.31

70.90%

161.90%

6.50%

(MCBI)

1.2

0.58

67.83%

150.00%

7.00%

(HAFC)

1.37

1.15

63.70%

33.33%

8.00%

(TA)

0.02

0.57

29.79%

94.90%

10.00%

(NARA)

2.57

1.08

13.76%

71.43%

15.00%

(KFFG)

2.9

0.82

-29.50%

0.00%

8.00%

(METR)

1.67

0.8

-38.84%

257.14%

10.00%

(BNHNA)

0.43

0.86

-61.96%

40.00%

(DK)

0.17

1.18

-90.67%

197.10%

15.00%

(PIKE)

0.63

1.31

-143.42%

1100.00%

(MBRG)

2.36

1.16

-203.77%

9.46%

10.00%

(OESX)

1.13

0.98

-1130.13%

550.00%

35.00%

(COBZ)

2.09

1.15

-5850.80%

133.33%

11.00%

A price to sales under one is a well used metric by Ken Fisher.

While this strategy only looks at a 3 month window for momentum, it has been observed that high relative strength stocks over the preceding 6 months also provide decent returns with the succeeding 6 months.(You might also be interested in finding popping stocks by reading 19 Companies Whose Growth Exceeds Their Stock Prices) If this where the case, then we could include the following stocks:

Ticker

Company

Market Cap

Price

(NASDAQ:CBAK)

China BAK Battery, Inc.

115.15

1.81

(NASDAQ:CENX)

Century Aluminum Co.

1498.68

16.16

(NASDAQ:ESIO)

Electro Scientific Industries Inc.

427.36

15.16

(NYSEMKT:HTM)

US Geothermal Inc.

25.58

1.02

(NYSEMKT:ITI)

Iteris, Inc.

58.72

1.71

(NASDAQ:RNWK)

RealNetworks Inc.

519.62

3.83

(XTXI)

Crosstex Energy Inc.

449.68

9.59

In theory, these stocks should have a strong upside over the following 6 months with the momentum and fundamental scanning mentality. Do you currently own one of these companies or is there one pick that stands out to you? If so, please leave a comment on these screened picks that were selected from a combination of fundamental and technical analysis.

Source: 30 Explosive Stock Picks Based on Fundamentals and Momentum