To produce enough stocks to make it through the filtering process, I normally would have used all 681 stocks in David Fish's December 2016 CCC list. But, since I only recommend stocks which fall into the top-Dugan-scoring 50% of the list, this time I only used those highest-scoring 50% (340 companies) of David's All CCC list.
For your reference, I recently published my December's 'Best' CCC Companies With Market Cap Greater Than $5B, Yield Greater Than 2.25% And Other Filters, found here.
The Dugan Scoring System is a tool to identify the overall quality of CCC companies. Those companies' stocks earning high Dugan Scores are high-quality stocks, which should produce better investing results, going forward, than otherwise would be attained by simply filtering for desired characteristics. In this context, highest quality means companies which have:
- STRONG CURRENT CONDITIONS, as exemplified by: great value as measured by relative Graham number, low payout ratio, low debt/equity ratio and high Most Recent dividend increase %.
- EXCELLENT PROSPECTS, as exemplified by: high EPS growth forecasts for This Year, Next Year and 5 years out, and excellent dividend growth histories.
While the Dugan Scoring System isn't a popularity contest, it is a disciplined, systematic and dispassionate approach that evaluates each CCC stock on the basis of a wide variety of investment criteria from four broad categories: Risk, Value, Past Performance and Future Performance Expectations. So, the purpose of the Scoring System is to determine the all-around quality of a stock for buying, holding or selling purposes.
No stocks, like no people, are perfect. Even high-quality and high-scoring stocks have weaknesses. So, a Dugan Score is a balanced, holistic picture of a stock, which includes its strengths and weaknesses.
You can see from the above explanations, the Dugan Stock Scoring System is about the current state and expected future performance of a company's stock, not necessarily the company itself. And, it doesn't matter how well a company's stock has performed for its owners in the past. It only matters what is the current condition and expected future performance of the stock.
The table below is a summary of the metrics used in the Dugan Scoring System, along with each metric's relative weighting in the overall formula. The weightings are my assessment of each metric's relative importance in calculating the company's overall quality.
After calculating the Dugan Score, a small bonus, or penalty, is applied to the earned-score for each CCC stock, based on a few brokers' recommendations for current sector weightings. The base bonus or penalty calculation is simple: market weight earns zero points, overweight earns 1 point, and underweight earns minus 1 point, net from each of the 3 brokers.
Using the Dugan Scoring System, and the identified 2 filters, produces the following list as the highest scoring December 2016 CCC companies, by sector, broken into two halves for easier reading:
And the lower five best-of-sectors:
For perspective about any company on the list, I always find it helpful to compare how well that company's performance in any column compares to the averages shown at the bottom of the table. Doing this will answer most questions about why a company may have achieved the Dugan Score it earned.
I hope you found the information valuable and enjoyed this journey. Comments are encouraged. Successful investing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. (Borrowed from Chuck Carnevale.)
Disclosure: I am/we are long GLW, CSCO, QCOM, DOW, MGA, BBY, TSO, PRU.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.