Ranked by 28-Period Williams %R as of 01/03/09 *

Stock	Reference Date	% Chg	Gain in 2009	Company	Industry	% from Max	Monthly % Gain	%R1	%R2
NE	12/26/08	10.6%	7.5%	Noble Corporation	Oil Well Services & Equipment	0.0%	8.8%	-64	-44
ESV	12/26/08	10.4%	6.8%	Ensco International Incorporat	Oil Well Services & Equipment	0.0%	17.9%	-46	-29
HP	12/26/08	22.1%	10.2%	Helmerich & Payne, Inc.	Oil Well Services & Equipment	0.0%	32.9%	-41	-17
CP	12/26/08	5.2%	2.2%	Canadian Pacific Railway Limit	Railroads	0.0%	12.1%	-23	-15
NTRI	11/21/08	23.5%	1.0%	NutriSystem Inc.	Personal Services	0.0%	7.5%	-11	-9
EGN	12/26/08	13.9%	7.3%	Energen Corporation	Natural Gas Utilities	0.0%	12.0%	-28	-2
PCP	12/19/08	5.8%	6.6%	Precision Castparts Corp.	Construction - Supplies and Fixtures	0.0%	24.0%	-22	-2

 

Warren Buffet neither sponsors nor endorses this information.

Key

 

Warren Buffett Screening Criteria

      Buffett is often identified with Benjamin Graham, with whom he studied, worked under, and maintained a long friendship. Buffett has never expounded extensively on his investment approach. One recently published book that discusses his approach in an interesting and methodical fashion is "Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World's Most Famous Investor," by Mary Buffett, a former daughter-in-law of Buffett's, and David Clark, a family friend and portfolio manager [the book is published by Simon & Schuster, 800-223-2336; $27.00]. This book was used as the basis for screening stocks.

      Warren Buffett's approach identifies "excellent" businesses based on the prospects for the industry and the ability of management to exploit opportunities for the ultimate benefit of shareholders. The approach makes use of "folly and discipline": the discipline of the investor to identify excellent businesses and wait for the folly of the market to buy these businesses at attractive prices. Investment in stocks based on their intrinsic value, where value is measured by the ability to generate earnings and dividends over the years.  Buffett targets successful businesses-those with expanding intrinsic values, which he seeks to buy at a price that makes economic sense, defined as earning an annual rate of return of at least 15% for at least five or 10 years.

     No limitation on stock size, but analysis requires that the company has been in existence for a considerable period of time. The screen looks for consumer monopolies, selling products in which there is no effective competitor, either due to a patent or brand name or similar intangible that makes the product unique. In addition, he prefers companies that are in businesses that are relatively easy to understand and analyze, and that have the ability to adjust their prices for inflation.  Other factors are: A strong upward trend in earnings, Conservative financing, A consistently high return on shareholder's equity, A high level of retained earnings, Low level of spending needed to maintain current operations and Profitable use of retained earnings.

      In one case, Buffett determines a firm's initial rate of return and its value relative to government bonds. This based on earnings per share for the year divided by the long-term government bond interest rate. The resulting figure is the relative value-the price that would result in an initial return equal to the return paid on government bonds.

      In another case, value is based on projecting an annual compounding rate of return based on historical earnings per share increases. Current earnings per share figure and the average growth in earnings per share over the past 10 years are used to determine the earnings per share in year 10.  This figure is then multiplied by the average high and low price-earnings ratios for the stock over the past 10 years to provide an estimated price range in year 10.  If dividends are paid, an estimate of the amount of dividends paid over the 10-year period should also be added to the year 10 prices.

      Stock monitoring and when to sell does not favor diversification.  Buffett prefers investment in a small number of companies that an investor can know and understand extensively.  He favors holding for the long term as long as the company remains "excellent", is consistently growing and has quality management that operates for the benefit of shareholders. Sell if those circumstances change, or if an alternative investment offers a better return.

     The screen as implemented requires a maximum PE of 17 and that the stock be optionable.  This was done to reduce the number of picks.

 

     Information is provided by the American Association of Individual Investors.