In James O’Shaughnessy’s book, "What Works on Wall Street," he combined a variation of value and momentum investment strategies. One of the screens he designed first picks stocks with P/E ratios lower than 20, and then purchases those with the highest price appreciation in the last 52 weeks.
In a 52 year back testing, this strategy returned an average annual compound return of 17.9% vs. 13.0% for all stocks, beating the S&P 500 index by 4.9% per year. The downside risk of the strategy is nearly 10% less than that of all large cap stocks.
Below we compiled a list of 30 stocks that satisfy O’Shaughnessy’s screens:
Company name | Symbol | P/E ratio | 52w price change (%) |
Parkvale Financial Corp. | 16.14 | 201.76 | |
Crawford & Company | 6.7 | 145.02 | |
HollyFrontier Corp | 10.19 | 136.44 | |
Sturm, Ruger & Company | 19.59 | 133.84 | |
Advance America, Cash | 11.41 | 132.21 | |
Newcastle Investment | 0.57 | 110.04 | |
Dillard's, Inc. | 13.56 | 106.6 | |
Buckeye Technologies | 9.1 | 100.52 | |
W&T Offshore, Inc. | 11.53 | 96.13 | |
Lithia Motors, Inc. | 15.01 | 94.69 | |
Terra Nitrogen Co | 15.7 | 92.65 | |
Alto Palermo | 18.33 | 90.32 | |
Cash America Intl. | 15.62 | 87.22 | |
Avago Technologies | 16.4 | 86.38 | |
Telular Corporation | 2.35 | 86.25 | |
Magic Software | 11.99 | 85.59 | |
Weight Watchers | 16.91 | 85.44 | |
US Home Systems | 10.75 | 77.86 | |
Mueller Industries. | 17.29 | 77.57 | |
Central Vermont Public | 18.96 | 77.26 | |
Federal Agricultural Mortgage | 5.01 | 76.45 | |
Internet Initiative Japan | 19.78 | 76.24 | |
CF Industries Holdings | 12.2 | 75.33 | |
Atlas Pipeline Partner | 8.38 | 74.62 | |
Multi-Color Corp | 14.93 | 73.07 | |
RPC, Inc. | 13.98 | 72.4 | |
DSW Inc. | 13.99 | 72.06 | |
Spreadtrum Comm) | 10.69 | 70.49 | |
Primoris Services | 11.81 | 70.21 | |
NL Industries, Inc. | 6.26 | 69.78 |
Parkvale Financial Corp is on the top of our list. The stock returned 201.76% during the past 52-weeks. Parkvale is a unitary savings and loan holding company. Cliff Asness had 404K shares of PVSA. Richard Schimel also had 50K shares of PVSA stocks.
Newcastle Investment Corp is another stock with a three digit 52-weeks return. Newcastle is a real estate related investment and finance company. It also has a high dividend yield of 10.62% and a low P/E ratio of 0.57. Seth Hamot invested over 2 billion shares of NCT. Michael Novogratz also had more than 1 billion NCT shares.
Lithia Motors, Inc. is an operator of automotive franchises, and a retailer of new and used vehicles and services. It returned 94.69% during the past 52 weeks and there is still significant interest in this stock by hedge funds and insiders. Directors and officers of the company have been buying since last year, especially in the recent two months. Chuck Royce had $16 million in this $466 million stock. John Murphy also had $10 million invested in LAD. There are nearly a dozen other hedge funds with moderate investments in LAD.
We believe that investors will be able to beat the market by constructing a 30-stock portfolio. Buying all of these 30 stocks should provide some diversification as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
