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Strategies & Market Trends : Value Investing

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From: Mario :-)10/5/2017 1:14:31 PM
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(maybe partially OT)

I have a question about fundamental screening parameters if some of you would like to comment on it. Screen may be partially OT since it is not designed to find low intrinsic value candidates. But it does try to find fundamentally sound companies. It is quick and dirty screen based on only two parameters: retained earnings and stockholders equity.

Screen is called 'RESHE' I found it in one book and the idea is, that the dollar amount of retained earnings should be totally reflected in the stockholders equity for the past two quarters and for the most recent year.

Here are details, 4 conditions: (percentage conditions are based on authors experience over time)

1 - an increase in retained earnings of at least 20% year to year for the past two years
2 - an increase in retained earnings of at least 8% sequentially for the past two Q’s
3 - the dollar amount of retained earnings increase for at least latest year must be totally reflected in the increase in stockholder equity
4 - the dollar amount of retained earnings increase in the last two quarters must be totally reflected in the increase in stockholder equity

I ran the scan (S&P 500) about a year ago, I think it was November 2016, and I got these three picks: CNC, FB, REGN. I saw FB and said forget it since I was hoping for some kind of low intrinsic value results. :-) But now thinking about it again, I'm wondering, this screen may be useful to single out candidates that can be then looked at harder in case of some stronger market correction when everything gets pushed down hard.

So for this reason, I'm asking you guys, that have a good handle on fundamental analysis, what do you think about this screen as being quick and dirty way to find companies that may have so-so sound fundamentals?

Two of those three picks did quite good in past 12 months, but so did the whole market. I just ran the scan again and this time I got these two results: FB (tell me about it lol) and KLAC

Here are the ones that missed one condition out of 7 (I had to break down conditions further to be able to properly compare them that's why there are 7 instead of 4):

grade 6: ['AMZN\n', 'CNC\n', 'MU\n', 'REGN\n', 'SNI\n', 'FOXA\n', 'WYNN\n']

Since (per author) yearly condition is more important that quarterly and I don't know which conditions failed, some of these 'grade 6' may belong to lower grade...

Also list of S&P 500 stocks is several years old and partially outdated. Lastly, I'm screening from Yahoo and not all numbers for all stocks gets returned. Some 15% of tickers fail. But all this is not really important that much. All I'm wondering how much "fundamental" and useful this screen really is?


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