Seeking Alpha
, Portfolio123 (1,214 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

In my previous post here, I introduced a screening method for stocks from the Mid-Cap universe. This method has been elaborated after scrupulous back-testing, which has proven to perform much better than the main indexes of the U.S. stock markets. On August 17, 2012, six weeks after the first examination, I checked the performance of the 5 stocks that resulted from the screening formula I called M-1. The results are shown in the table below.

In this time frame, the 5 companies resulted from the formula have had an average gain of 12.11%, 7.42% better than the gain of the S&P 500 index, which rose only 4.69% in that period.

My recommendation was to run this screen from time to time and replace the stocks that no longer comply with the screening requirement with other stocks that have a better chance to comply with the requirement. Following this recommendation, I ran the screen again on August 17, 2012, here, and I checked the performance of the 5 stocks on September 13, 2012. The results are shown in the table below.

Also in this time frame, the 5 stocks resulted from the formula outperformed the S&P 500 index by a nice margin. These stocks have had an average gain of 9.83%, 6.88% better than the gain of the S&P 500 index, which rose only 2.95% in that period.

The screen M-1 requires all stocks to comply with all following demands:

  1. The stock is included in the S&P 400 index.
  2. Earnings growth past 5 years (per annum) is greater than 10%.
  3. Earnings growth estimates next 5 years (per annum) is greater than 10%.
  4. The company has shown a profit in every year in the last 5 years.
  5. Current P/E Ratio (last 12 months) is less than its average 5 years' P/E Ratio multiplies by 0.6.
  6. 5 stocks with the lowest Market Value among all the stocks that passed the first 5 demands.

I ran the screen again on September 14, 2012 before the market open, the 5 following stocks were obtained as results:

ACI Worldwide Inc (ACIW)

Business description from Yahoo Finance (see here):

ACI Worldwide, Inc. develops, markets, installs, and supports a line of software products and services for facilitating electronic payments worldwide. It offers online banking and cash management products, such as ACI Enterprise Banker, an Internet-based product for financial institutions that provide customers with electronic payment initiation capability, information reporting, and other payment related services; and ACI Global Banker, which offers access to corporate cash management, trade finance, FX services, reporting, and data exchange. ACI Worldwide, Inc. was founded in 1993 and is headquartered in New York, New York.

Chart: finviz.com

Cypress Semiconductor (CY)

Business description from Yahoo Finance (see here):

Cypress Semiconductor Corporation designs, develops, manufactures, and markets mixed-signal and programmable solutions worldwide. Its Consumer and Computation division offers programmable system-on-chip (PSoC) devices for consumer, industrial, medical, and system management applications; TrueTouch touchscreen controllers; CapSense touch-sensing solutions; universal serial bus (USB) controllers, USB hubs, transceivers, serial interface engines, and embedded-host products; WirelessUSB; programmable clocks for devices requiring multiple frequencies; and RoboClock clock buffers that offer timing solutions. The company was founded in 1982 and is headquartered in San Jose, California.

Chart: finviz.com

JetBlue Airways Corporation (JBLU)

Business description from Yahoo Finance (see here):

JetBlue Airways Corporation provides passenger air transportation services in the United States. As of December 31, 2011, it operated approximately 700 daily flights to 70 destinations in 22 states, Puerto Rico, and Mexico; and 12 countries in the Caribbean and Latin America through a fleet of 120 Airbus A320 aircraft and 49 EMBRAER 190 aircraft. The company, through its subsidiary, LiveTV, LLC, provides in-flight entertainment, voice communication, and data connectivity systems and services for commercial and general aviation aircraft, including live in-seat satellite television, digital satellite radio, wireless aircraft data link service, and cabin surveillance systems. JetBlue Airways Corporation was founded in 1998 and is based in Long Island City, New York.

Chart: finviz.com

Northern Oil and Gas, Inc. (NOG)

Business description from Yahoo Finance (see here):

Northern Oil and Gas, Inc., an independent energy company, engages in the acquisition, exploration, development, and production of crude oil and natural gas properties primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota and Montana. As of December 31, 2011, the company owned working interests in 664 discoveries, consisting of 659 targeting the Bakken and Three Forks formations, and 5 exploratory wells targeting other formations; and developed approximately 52,219 net acres and had approximately 17,290 net acres in the process of drilling and completing. Northern Oil and Gas, Inc. is based in Wayzata, Minnesota.

Chart: finviz.com

Rovi Corporation (ROVI)

Business description from Yahoo Finance (see here):

Rovi Corporation provides digital entertainment technology solutions for the discovery and management of entertainment content. It offers interactive program guides; embedded licensing technologies, such as recommendations and search capability; media recognition technologies; licensing of the company's database of descriptive information about television, movie, music, books, and game content; and analog content protection technologies and services. Rovi Corporation was founded in 1983 and is headquartered in Santa Clara, California.

Chart: finviz.com

The outstanding results of the stocks emerging from formula M-1 during the last period are by no means a guarantee for future ones. However, on the long run, this formula should bring a nice profit to investors, as was proven by back-testing this screening formula over several years.

Source: 5 Mid-Cap Stocks To Beat The Market - Part 3