Ranked by 28-Period Williams %R as of 06/28/08 *

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Key

Peter Lynch Screening Criteria

    Peter Lynch believes that one should invest only in industries and companies he understands and that he should know the specific reason that he is buying the stock. One’s analysis should center on the factors that will move the stock price.  He should look for low P/Es compared to earnings growth and dividend yield, he should look for P/E in lower range of historical average and he should look for P/E below industry average. One should study the pattern of earnings, especially how they reacted during a recession.  Then he should look for a low level of debt, especially bank debt   Net cash per share should be high relative to stock price.  But one should be wary of earnings growth rates above 50%.  Small companies should be favored in a search; they have more upside potential.  One should look for low percentage of shares held by institutions and number of analysts following stocks.  Insider buying by a number of insiders is a positive sign.  If the company is buying back shares, this will support the stock price and probably indicates the company has been ignored, but that management is confident.   Screening is done using some of his principles described in his two books, "One Up on Wall Street" and "Beating the Street."

Applying the Lynch Screen

     Much of the analysis advocated by Peter Lynch is subjective in nature, requiring hands-on analysis. As Peter Lynch stresses, it is possible to succeed at investing, but you must be willing to do your work.  While Peter Lynch is a bottom-up, kick-the-tires type of stock picker, some of his principles are useful screening criteria. The first screen excludes financial firms. Peter Lynch is a big fan of financial stocks and presents a series of screens he uses to help select banks and savings and loans in "Beating the Street." We had to exclude them from the general screen, however, because their financial statements cannot be directly compared to other firms.  The first screens require a current price-earnings ratio below the industry and below the company's five-year average price-earnings ratio. Our screen also uses the ratio of price-earnings to the earnings growth rate plus the dividend yield. A ratio less than or equal to 0.50 is specified as the cut-off.  Lynch is wary of companies growing too quickly, so the next filter specifies a maximum earnings per share growth rate of 50%.  Lynch is also wary of companies with too high an institutional interest. A screen limiting firms to those with percentage of shares held by institutions below the universal median is included in the Lynch screen.  The final filter requires that the total liabilities to assets for each company be less than its industry average.

     Information is provided by the American Association of Individual Investors.