I was really feeling stressed and alone this morning – as I ran my morning screens – no candidates came up – zip, nada. Here are the screens I run mid-week:
- 52 Week Low Screen: Based on the book: The 52-Week Low Formula by Luke L. Wiley
- Morningstar analysis available.
- Less than 5% above its 52 week low.
- Greater than or equal to narrow moat.
- Free cash flow/enterprise value greater than 3% (should be above what the 10 Year Treasury Bond is yielding).
- Financial Health Grade >= B.
- Forward P/E <= 20.
- For candidates that have passed all the filters, review the individual stocks Return on Invested Capital (ROIC) for the previous 10 years to select the best long term candidates.
- High Dividend Stock Screen: Based on the book: Get Rich with Dividends by Marc Lichtenfeld
- Morningstar analysis available.
- Dividend Yield % > = 4.
- Dividend Growth % Past 5 Years > = 10.
- Payout Ratio Trailing 12 Months < 75
- Morningstar rating 4 or more stars.
- Financial Health Grade >= B.
- Forward P/E <= 20.
Besides finding investment candidates – I have found that these screens can also serve as a reliable Contrarian investing signal. If these screens cannot find even one candidate to research further – the market is probably fully priced. Unfortunately, it is hard to be a contrarian, we are wired to move with the crowd – if feels safe, even when the reality is the opposite.
I really need to stop watching CNBC in the morning:
- CNBC – Closely watched investor Byron Wien predicts 10% further stock gain on ‘more reasonable’ Trump
No less than six guests in a row – all predicted the S&P 500 would be going up again in 2017 – not a contrarian in the bunch.
I have new money to put to work – so I must do something. I have already maxed out my equity holdings at these valuation levels – if anything, I should be selling equities at these levels – thus I sold some calls on my GILD holdings last week. I will be exploring this subject – and highlighting some of my ideas over the next few weeks – stay tuned.
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