In 1999, the Foolish Workshop will officially keep tabs on 10 specific models. The one model we followed in 1998 that we won't be following in 1999 is Investing For Growth - Relative Strength. We'll continue to follow the Classic. The three new models that we'll officially be tracking are the Spark5, PEG5, and Beta models. Below are the explanations of all the models we'll be following for 1999.
For general background on the data sources for the following screens, see:
Timeliness Rankings, Part 1 Timeliness Rankings, Part 2 Relative Strength
Keystone: Starting with all of the domestic (Domicile Code = US) stocks ranked Timeliness 1 or 2 by the Value Line Investment Survey, narrow the field to the 30 stocks with the largest market capitalization. Of those thirty chose the ten stocks (or five) with the highest Total Return (26 week). From 1986 through 1997, the 10-stock version of this strategy has returned an annualized 25%. The five-stock version has returned 28%. For this backtest, the portfolio was renewed (stocks were updated and rebalanced) once every 12 months.
Spark 5 - Taking all of the stocks ranked Timeliness 1, 2, or 3 by the Value Line Investment Survey, filter for the following attributes:
1. Total Return (26 week)is greater than or equal to 20%
2. %EPS 12-month Chg Latest Qtr is greater than or equal to 20%
3. % EPS Change from Last Quarteris greater than or equal to 20%
4. Estimated % EPS Change for the Fiscal Yearis greater than or equal to 29%.
Sort the remaining stocks by market cap and select the top 5.
**Note - The creator of this screen, Sparfarkle, has tested this screen with annualized results of 42% since 1986. The Motley Fool has not independently verified these results. For this volunteer backtest, the portfolio was updated and rebalanced every 12 months.
PEG 5 - For stocks ranked Timeliness 1 or 2 by the Value Line Investment Survey and with a positive Current P/E take the 25 stocks with the highest Total Return (26 week). From those, take the 10 stocks with highest Projected EPS Growth Rate. Sort these in ascending order by PEG (Current P/E divided by Projected EPS Growth Rate). Select the five with the lowest PEG ratios.
**Note - The creator of this screen, MChernick, has tested this screen with annualized results of 41.6% since 1986. The Motley Fool has not independently verified these results. For this volunteer backtest, the portfolio was updated and rebalanced every 12 months. A portfolio that was updated semiannually returned 48.6% per year over the same time period.
Investing for Growth -- Classic: Starting with Value Line's database of High Growth Stocks, (page 39 of the Summary and Index print edition) narrow the field to only those stocks which are ranked Timeliness 1. Select the ten with the best (lowest) Value LineIndustry Rankings. When it becomes necessary to break a tie, first use Value Line'sEstimated Growth - 3-5 Years, then use the Growth Past 10 Years number. This model has not been tested using an annual holding period. Using a quarterly cycle, however, it has returned 24% a year from 1980 through 1997.
Unemotional Growth: Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select the ten (or five) with the highest EPS (earnings per share) score in Investor's Business Daily. Ties for 5th or 10th place are broken using the RS (relative strength) score, also from Investor's Business Daily. (If you use a simultaneous dual sort, first sort by EPS descending, then by RS descending.) This model has not been tested using an annual holding period. A strategy that adjusted the portfolio monthly, however, returned 39% a year for a five-stock portfolio from 1987 through 1996. A ten-stock version has returned 30% a year on that same monthly cycle.
Relative Strength -- IBD: Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select the ten (or five) with the highest RS (relative strength) percentile score in Investor's Business Daily. Ties for 5th or 10th place are broken using the EPS (earnings per share) score. (If you use a simultaneous dual sort, first sort by RS descending, then by EPS descending.) This model has not been tested.
Formula 90: Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select only the stocks that have an EPS (earnings per share) score in Investor's Business Daily of at least 90, then sort only those stocks by RS (relative strength) score from Investor's Business Daily. For the portfolio, select the ten (or five) stocks with the highest RS. Ties for 5th or 10th place are broken using the EPS score. (If you use a simultaneous dual sort, first sort by RS descending, then by EPS descending -- after selecting the stocks with EPS above 90.) Using an annual renewal strategy, the ten-stock variation of this model has returned 34% a year while the five-stock version has returned 33% per year since 1987. These impressive returns have been accompanied by very high inter-year volatility, however.
Relative Strength -- 26 Week: Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select the ten (or five) with the highest Total Return (26 week). This model has not been tested.
Low PSR - Starting with all of the stocks ranked Timeliness 1 by the Value Line Investment Survey, select only those stocks with a P/S ratio lower than 1.50. Eliminate any stocks on this list with negative EPS Growth - 1 year or N/A for EPS Growth. Select the 10 with the highest Total Return (26 week). The suggested holding period is one year, but the strategy has not been tested.
Beta - Taking the Timeliness 1 stocks in the Value Line Investment Survey, simply sort these stocks in descending order by their beta. Select the ten (or five) stocks with the highest betas. This screen has not been tested.
