While I discussed a “Magic 600” universe that I created from the Russell 3000, I have tweaked it a bit to exclude Financials and Utilities, settling now for a “Magic 500”. While clearly not all of the members of this group will make good investments, many will. The screen presented below attempts to identify stocks that meet the top quintile requirements for the two criteria but also meet some stricter criteria.
In this case, I wanted to find those stocks in the group that have underperformed the market over the past year but have shown relative strength lately. Unlike the momentum model that I shared last week, this screen permits slight negative earnings revisions. Again, total debt to capital is limited as well. Specifically:
I must say that there is a stock for everyone on the list below. The market caps ranged from $300mm to over $40 billion, with 6 economic sectors represented. The stocks kicked out have a median PE below 15, an ROC in excess of 18% and a YTD return of 20% (a bit above the market’s return but significantly less than the 40% return in the previously discussed momentum list). A couple of the stocks are actually on both lists, including Nordic American (NAT) and Plexus (PLXS). In addition to PLXS, Benchmark (BHE) is on my watchlist. I am impressed with the median debt to capital ratio of just 5%. Many of these stocks pay dividends as well. Though neither of these stocks is on my formal watchlist, I am aware of Forward Air (FWRD) and Rockwell Automation (ROK) as being excellent companies. Both have stumbled a bit lately, most likely giving longer-term focused investors a chance to get in at reasonable entry prices. Happy hunting!
Disclosure: No position in any stock mentioned