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New Rule #1 Screen
Investment Jungle reader Tri mentioned a couple of stocks that he considers are wonderful businesses selling at an attractive price. That got me thinking that I should re-evaluate the screen that I initially used to find these Rule #1 companies.
So, I sat down and came up with a screen for finding these wonderful Rule #1 businesses. It is very similar to my last screen.
My screening criteria:
- 10 Yr Sales Growth Rate
- 5 Yr Sales Growth Rate
- 1 Yr Sales Growth Rate
- 10 Yr EPS Growth Rate
- 5 Yr EPS Growth Rate
- 1 Yr EPS Growth Rate
- Book Value Growth Rate
All these growth rates had to be greater than 10%. As you can see, I have left out the cash flow growth rate. Phil Town states that this is the least important one as the company may deploy all its cash during a growth spurt. So I would prefer to look at this criteria on a case by case basis.
I also added the following liquidity ratios as criteria to ensure that the business is not growing due to debt:
- current ratio > 2.0
- quick ratio > 2.0
- debt-to-equity ratio < 1
And lastly, in my initial screen, I used the PEG ratio to determine if the business was selling at an attractive price. This time, I decided to not use the PEG ratio. That way, I could get a look at all the wonderful businesses. Instead, I decided to sort my list in order of the earnings yield.
The earnings yield is the current EPS divided by the current price. We can use the earnings yield to determine which stocks are selling at a discount.
So, what stocks did the screen deliver? The following 31 stocks came up:
Rule #1 Screen Results 05-20-2007
| Company | Symbol | Earnings Yield |
|---|---|---|
| Encore Wire Corp | WIRE | 15.08 |
| Ceradyne | CRDN | 7.96 |
| Trican Well Service | TCW | 5.65 |
| Diodes | DIOD | 5.13 |
| Bebe Stores Inc | BEBE | 4.84 |
| CRA International | CRAI | 4.76 |
| First Cash Financial | FCFS | 4.67 |
| Pason Systems Inc | PSI | 4.66 |
| Rofin Sinar Tech | RSTI | 4.62 |
| Medtronic Inc | MDT | 4.42 |
| Comtech Telecom | CMTL | 4.39 |
| Team Inc | TISI | 4.19 |
| Credo Petroleum Corp | CRED | 4.15 |
| SEI Investments | SEIC | 4.12 |
| Integral Systems | ISYS | 4.00 |
| Micronetics Inc | NOIZ | 3.95 |
| Respironics Inc | RESP | 3.81 |
| Neogen Corp | NEOG | 3.71 |
| Eaton Vance Corp | EV | 3.52 |
| Techne Corp | TECH | 3.48 |
| Stryker Corp | SYK | 3.28 |
| Fastenal Co | FAST | 3.27 |
| Resmed Inc | RMD | 3.09 |
| Qiagen NV | QGEN | 3.08 |
| Factset Research Sys | FDS | 2.84 |
| Macrovision Corp | MVSN | 2.59 |
| Cerner Corp | CERN | 2.46 |
| Consolidated Water Co | CWCO | 2.28 |
| Cognizant Tech Soln | CTSH | 2.15 |
| Lifeway Foods Inc | LWAY | 1.95 |
| Hi Tech Parmacal Co | HITK | 1.28 |
And interestingly enough, one of the companies that Tri mentioned, Encore Wire Corporation (WIRE) came up at the very top of my list!
I look forward to evaluating each of these companies.
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Related posts that may interest you:
- Rule #1 Screen Results as of May 12, 2008
- Time for a New Rule #1 Stock Screen
- Dividend Screening - The Easy Way
- Criteria for my Rule #1 Screen
- Dividend Screening Results
I am curious as to what screener you are using. I have looked at the Deluxe Screener in MSN, but they have pulled/changed some of the criteria over the last year or two. Any information would be helpful.
December 7th, 2007 at 4:18 pmThanks
Jk