I managed to find one screen that seems to be working well:
1. Forward PE < 20
2. 5 Years Growth > 20%
3. Price above 200 day moving average
4. Price between 0 to 5% above 50 Day moving average
5. Price within 5% of 52 Week High.
My theory is to buy stocks that have great growth but are undervalued in the market. In addition, the stocks should be making higher highs, be within reach of a breakout, and yet be at a good accumulation point (slightly above the 50 day moving average).
In a question regarding whether to buy 52 week highs or 52 week lows, Jim Cramer on Stockpickr.com) says that:
"They dont get on the 52-week-high list for nothing.
Companies that get on it get there because they are in
the right sector and have the best execution. That's a
better list to buy on than just about anyone i know,
particularly on a 5% pullback.
I like IBD for this and Lee Cooperman, one of the great
investors, who emphasized this view to me when he was
running research at Goldman."
Part of the screen I developed seems to match what Lee Cooperman of Goldman Sachs has found out. It is good to buy 52 week highs especially on a 5% pullback.
Also, rather than using pure PE to Growth ratio, I prefer to use a PE of less than 20, and 5 year growth rate of greater than 20, guaranteeing us a PEG of less than one. Since the 5 year growth rate is less reliable than the forward PE, by choosing stocks with a low PE, we'll have a greater level of safety if a companies 5 year estimate starts going down.
I managed to create three portfolios using this screen in the past and in another article (here), I will check on the performance of all three portfolios.