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I update the following portfolio/screen on a monthly basis on Scott's Investments. March's list of 35 stocks is here and the top 10 rated stocks returned an average of 2.23% for the top 10 stocks on the list versus -1.57% for SPY. The entire list of 35 stocks last month returned an average of 5.4%, led by Select Comfort (NASDAQ:SCSS) at 38.19%.

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.
  • The stocks are then ranked based on fundamental factors as compiled by stockscreen123.

Thirty-five stocks qualified for this month's list. Just as in last month, this tells us individual stock momentum still exists in the market and the fundamental factors on the list are easy to find among the high momentum stocks.

Some popular names made this month's list, inclduing Apple (NASDAQ:AAPL) and Intel (NASDAQ:INTC). AAPL has struggled to breach its high set in February, even after another blowout quarter. It is priced at a reasonable forward projected Price-to-Earnings (P/E) of 12.48 and Price-to-Earnings Growth (PEG) of .84. However, keep in mind these are forward projections and are predicated on Apple continuing to show strong earnings growth. It also has a return on equity and return on investment in excess of 30% and no long-term debt.

Intel is slowly transforming itself into a favorite among dividend investors. It currently yields 3.3% and has little debt. It also has a return on equity and return on investment in excess of 20%. Finally, it has a forward P/E of 9.1 and a PEG of .91. The projected PEG and P/E of Intel are based on much lower earnings growth than a high growth stock like AAPL, a company which has shown significant and consistent earnings growth in recent years. However, for investors seeking a combination of yield, price momentum, a clean balance sheet, and reasonable valuation, Intel is worth consideration.

The rational for this screen is based on backtests showing stocks with low PEG ratios, debt, and high returns on equity and price momentum have produced good historical returns. The screen has tested well historically in bullish periods and has suffered during significant market drawdowns. Strategies an investor could use to avoid major drawdowns would be to either abandon this type of strategy entirely when the SP 500 or another major index is below a long term moving average, or hedge positions using one of the methods I profiled here.

Below are the backtest results for this strategy starting in March 31st, 2001. Returns exclude commissions and taxes and assume .25% slippage. No position accounts for more than 25% of the portfolio (relevant in cases when the screen produces less than 4 results) and it was equally rebalanced every 4 weeks. The test was conducted using stockscreen123:


(Click to enlarge)

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 QVG score Mkt Cap PEG LT Dbt Tot 2Eq Q ROE% 5Y Avg ROI% 5Y Avg
[AIT Applied Industrial Technologi Here 99.25 1455.32 0.87 0 15.4 12.47
EZPW EZCORP, Inc. Here 98.64 1497.68 0.75 0.03 20.36 19.63
AAPL Apple Inc. Here 96.03 324307.69 0.71 0 31.92 28.48
SMCI Super Micro Computer, Inc. Here 95.36 641.47 0.96 0.08 16.68 15.12
VSEA Varian Semiconductor Here 95.16 3408.49 0.74 0 15.09 13.83
FCFS First Cash Financial Services Here 94.25 1195.43 0.89 0.01 18.99 15.95
INTC Intel Corporation Here 93.27 115565.5 0.84 0.05 16.28 14.96
DTV DIRECTV Here 91.94 37204.02 0.6 0 30.78 12.76
NSP Insperity Inc Here 91.79 786.16 0.65 0 16.52 13.25
LECO Lincoln Electric Holdings, In Here 90.44 3207.83 0.97 0.09 15.69 12.28
BIG Big Lots, Inc. Here 90.11 3120.18 0.97 0 18.49 15.7
JOSB Jos. A. Bank Clothiers, Inc. Here 89.91 1429.17 0.91 0 20.55 17.5
SHOO Steven Madden, Ltd. Here 87.11 1428.22 0.97 0 20.13 19.63
MA MasterCard Incorporated Here 85.07 33792.75 0.81 0 29.76 22.24
NTES NetEase.com, Inc. (ADR) Here 83.97 6666.89 0.79 0 32.24 30.68
AIXG Aixtron AG (ADR) Here 83.34 4269.27 0.25 0 20.23 20.05
TRCR Transcend Services, Inc. Here 80.73 242.84 0.94 0 23.39 21.83
FOSL Fossil, Inc. Here 80.51 6156.55 0.95 0.01 18.69 18
ANF Abercrombie & Fitch Co. Here 79.8 6071.98 0.78 0.04 17.92 14.06
DECK Deckers Outdoor Corporation Here 79.57 3717.31 0.74 0 24.8 24.7
NVEC NVE Corporation Here 79.01 273.87 0.83 0 23.98 23.98
TSM Taiwan Semiconductor Mfg. Co. Here 78.72 63625.59 0.78 0.06 20.19 22.56
BIDU Baidu.com, Inc. (ADR) Here 74.29 51687 0.7 0.01 43.86 43.68
SEIC SEI Investments Company Here 72.02 4270.77 0.98 0.09 27.44 30.91
GNTX Gentex Corporation Here 70.94 4335.21 0.96 0 13 12.6
GSOL Global Sources Ltd. (Bermuda) Here 67.98 542.09 0.52 0 16.57 17.17
VLTR Volterra Semiconductor Corpor Here 67.6 624.49 0.8 0 15.44 15.25
WTSLA The Wet Seal, Inc. Here 67.38 450.37 0.73 0 15.16 13.37
GA Giant Interactive Group Inc Here 62.55 1994.99 0.99 0 19.8 19.75
BWLD Buffalo Wild Wings Here 59.09 1101.29 0.96 0.07 15.86 13.7
NSR Neustar, Inc Here 57.67 1948.05 0.73 0.02 17.96 16.84
APEI American Public Education, In Here 55.62 805.6 0.76 0 33.59 31.22
QCOR Questcor Pharmaceuticals, Inc Here 54.61 1200.42 0.67 0 43.34 42.57
SAPE] Sapient Corporation Here 43.53 1712.68 0.83 0 13.64 12.77
CKSW ClickSoftware Technologies Lt Here 42.61 297.15 0.33 0 26.52 22.28

Disclosure: None

Source: 35 High Quality Stocks With Price Momentum