This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
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This weeks screen has something for both Growth Investors and Value Investors.
And while Value Investors focus on low P/E stocks, too many are low because they lack earnings power.
So instead, try combining the best of both worlds and focus on the companies with the highest growth rates and the lowest P/E ratios.
The screen Im running this week is as follows:
- Companies with 5 Yr. Historical Growth Rates to be in the top 20 percentile of all companies.
(Using a Uniform Rank of 1-99 (99 being the best growth rates), I screened for stocks ranked 80 or better.)
- Companies that also happened to have the lowest P/Es lower than 80% of all other companies.
(Using a Uniform Rank of 1-99 again (this time 99 having the lowest P/Es), I screened for stocks ranked 80 or better.)
- I then required those stocks to be trading at or above $5, ... with average daily trading volumes of 100,000 shares or more.
- And a Zacks Rank of 2 or less.
(Only buys and strong buys allowed).
Incidentally, this screen backtested very well too. And while it wasnt designed to be a trading strategy per se (20-25 stocks on average is a lot of stocks to trade every month), this screening strategy beat the market every year for the last five years (2001 through 2005). (I ran a series of tests over the last five-year time span using a four-week rebalancing period. Each run was rebalanced over a different set of four-week periods to eliminate coincidence and verify robustness.)
In 2001, this screen showed an average annualized gross return of 42.6%. In 2002, it was 19.1%. In 2003, it was a whopping 93%. In 2004, it came in at 40.4%. 2005 was up 11.9%. And so far in 2006 (YTD -- through 10/13/06), its average compounded gross return is up nearly 6%.
This screen is an excellent way to find good growth companies that also have low valuations.
Check it out for yourself and get the rest of the stocks on this list. See where your stocks rank out of all of the other stocks out there, and test your own strategies and see how theyve done. Find out what works and what doesnt. It can all be done with the Research Wizard stock picking and backtesting program. Sign up now for your two week free trial and learn how. Click here. .
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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