Reasonably Priced Survivor in a Bear Market Stock Investing Strategy

One Stock Market Strategy is to look at those stocks that have survived a large correction or bear market.

Near the bottom, the S&P 500 Stocks Above 50 day moving average went as low as 8% (historically very low). Just a day after the bottom, let us look at stocks that follow this criteria:

1. Price is Above 50 Day Moving Average.
   
2. Stock is less than 10% near 52 week high.
   
3. Forward PE is less than 20.
   
4. 5 Year Estimated Growth Rate greater than 15%
   
5. (The last two entries, means Price Earnings to Growth Ratio (PEG) should be less than 1.33)
   

Only fourteen stocks met that criteria today using Yahoo Finance Screener:

1. Blackrock (BLK) -- $27 Billion Financial company. Investment Manager.
   
2. Raytheon (RTN) -- $27 Billion Defense Company.
   
3. Tele Norte Lest (TNE) -- $8.8 Billion Telecom Company. Serves North America, Europe, Asia and Brazil. Operates Fixed Line and Mobile Telecom.
   
4. Hudson City Bancorp (HCBK) -- $8 Billion Regional bank with no subprime exposure.
   
5. Fairfax Financial Holding (FFH) -- $5 Billion property and casualty insurance and reinsurance, invesment management, and insurance claims management.
   
6. Quilmes Industrial SA (LQU) -- South American Drink and Soda Company. Subsidiary of Ambev (ABV).
   
7. Pan American Silver (PAAS) -- $2.7 Billion Silver Company.
   
8. Sierra Health Services (SIE) -- $2.4 Billion Managed Healthcare Company.
   
9. Mariner Energy (ME) -- $2 Billion oil and gas exploration, development and production company in West Texas and the Gulf of Mexico.
   
10. Walter Industries (WLT) -- $2 Billion Coal Mining and Methane Gas company in the US, Europe, Turkey and Africa.
    
11. Buckle Inc (BKE) -- $1.2 Billion Retailer that offers casual apparel, footwear and accessories for young men and women.
    
12. CBIZ Inc (CBZ) -- $624 Million Business to Business company focusing on financial services, employee services, medical management professionals and national practices.
    
13. MTC Tech (MTCT) -- $354 Million Defense Company provides modernization and sustainment, professional services, command, control, communications, computers, intelligence, surveillance and reconnaissance and logistics solutions primarily to the defense, intelligence, civilian and the federal government agencies.
    
14. GP Strategies (GPX) -- $180 Million Company provides training, enginering, and consulting services mainly in the US, Canada, the UK, Mexico, Singapore, Malaysia and India.
    

Results of 3 Portfolios: Cheap Growth Ready to Breakout (July 16, 2007)

In a previous article, I described the Cheap Growth Ready to Breakout Screen.

In this post, we will continue to track the performance of three portfolios. We are taking the snapshot as of Monday, July 16, 2007.

==============================
Portfolio 1: February 23, 2007     
==============================
    
============================================= 
# Symbol Start  End     Return
=============================================
1 AMX 47.15 64.87 37.58% 
2 TSM 10.91 11.68 7.06% 
3 VIP 85.18 112.50 32.07% 
4 IPR 74.30 89.00 19.78% 
5 AYE 47.90 55.10 15.03% 
6 WCRX 14.45 19.17 32.66% 
7 BRP 43.42 72.89 67.87% 
8 SCS 19.76 18.72 -5.26% 
9 MLHR 39.54 33.37 -15.60% 
10 AIR 30.61 34.10 11.40% 
11 GRT 27.59 24.32 -11.85% 
12 DVR 12.49 16.70 33.71% 
13 TGI 55.02 70.25 27.68% 
14 CRAI 53.88 49.08 -8.91% 
15 TLF 7.99 7.10 -11.14% 
16 APH 33.89 37.07 9.38% 
17 GIL  26.80 35.24 31.49% 
18 MIDD 58.88 62.79 6.64% 
=========================================
= Total   15.53% 
=========================================     
 SPY 144.10 154.83 7.45% 
 IWM 81.64 84.48 3.48% 
 EFA 76.68 83.37 8.72% 
=========================================

===========================
Portfolio 2: March 14, 2007
===========================    
    
============================================= 
# Symbol Start  End     Return
=============================================
1 TSM 11.06 11.68 5.61%
2 DISH 42.50 43.92 3.34%
3 WFR 55.05 63.04 14.51%
4 ASX 5.95 7.23 21.51%
5 SPIL 9.18 11.64 26.80%
6 BRP 44.00 72.89 65.66%
7 LAUR 59.28 61.93 4.47%
8 KSU 33.65 40.67 20.86%
9 BEAV 30.73 43.09 40.22%
10 CVO 24.50 23.42 -4.41%
11 IART 43.45 50.30 15.77%
12 KNL 23.00 22.71 -1.26%
13 AIR 30.25 34.10 12.73%
14 MYE 18.24 22.16 21.49%
=============================================
= Total   17.66%
=============================================    
 SPY 138.13 154.83 12.09%
 IWM 76.91 84.48 9.84%
 EFA 72.83 83.37 14.47%
=============================================

==========================
Portfolio 3: May 16, 2007    
==========================

============================================= 
# Symbol Start  End     Return
=============================================
1 ESV 58.45 60.86 4.12%
2 GSF 65.98 72.07 9.23%
3 TDW 64.90 75.62 16.52%
4 KB 93.35 91.96 -1.49%
5 FCX 71.29 92.94 30.37%
6 VLO 72.03 76.08 5.62%
7 NBG 11.59 12.54 8.20%
8 ACGY 21.35 26.72 25.15%
9 AYR 35.98 38.78 7.78%
10 FTI 73.68 88.97 20.75%
11 HXM 62.29 61.50 -1.27%
12 SZE 57.58 57.11 -0.82%
13 SLB 76.50 90.54 18.35%
14 CLB 92.77 106.41 14.70%
15 CKR 20.38 19.51 -4.27%
16 CEPH 80.14 82.28 2.67%
17 TDK 87.55 92.02 5.11%
18 SNDA 26.65 33.04 23.98%
19 LKQX 24.30 25.38 4.44%
=============================================
= Total   9.96%
=============================================
 SPY 150.95 154.83 2.57%
 IWM 81.26 84.48 3.96%
 EFA 80.14 83.37 4.03%
=============================================

---

SPY is an ETF that represents that S&P 500 US Large Cap Index.
IWM is an ETF that represents the US Small Cap Russell 2000 index.
EFA is an ETF that represents the developed international market index covering Europe, Japan, and Australia.

Based on this, the three portfolios performed (until July 16, 2007)

1. February 23, 2007: 15.53% return, outperforming all three indices by 8.94% to 14.19%.
   
2. March 14, 2007: 17.66% return, outperforming all three indices by 3.19% to 7.82%
   
3. May 16, 2007: 9.96% return, outperforming all three indices from 13.63% to 15.09%
   

So far, this screen seems to be performing very well. Let us continue to monitor.

Cheap Growth Ready to Breakout Screen

In order to get more consistent results in the market, I've been trying to find good quantitative stock screens.

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.

Source(s):

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.