Ranked by
28-Period Williams %R
as of 06/28/08
*
|
Stock |
Reference Date |
% Chg |
Gain in 2008 |
Company |
Industry |
% from Max |
Monthly % Gain |
%R1 |
%R2 |
|
WOOF |
06/06/08 |
-6.3% |
-6.3% |
VCA Antech, Inc. |
Healthcare Facilities |
-6.3% |
-10.0% |
-100 |
-96 |
|
EXPO |
06/20/08 |
-1.3% |
-1.3% |
Exponent, Inc. |
Business Services |
-2.6% |
-2.9% |
-75 |
-81 |
|
EZPW |
06/20/08 |
-3.9% |
-3.9% |
EZCORP, Inc. |
Retail (Specialty Non-Apparel) |
-6.2% |
2.5% |
-48 |
-57 |
|
CHD |
11/18/05 |
70.1% |
3.7% |
Church & Dwight Co., Inc. |
Personal & Household Products |
-2.6% |
-1.8% |
-37 |
-52 |
|
ACL |
05/23/08 |
5.5% |
5.5% |
Alcon, Inc. |
Major Drugs |
-3.9% |
2.6% |
-36 |
-42 |
|
SLB |
05/16/08 |
0.6% |
0.6% |
Schlumberger Limited |
Oil Well Services & Equipment |
-2.3% |
4.7% |
-42 |
-35 |
|
DNA |
04/11/08 |
-5.3% |
-5.3% |
Genentech, Inc. |
Biotechnology & Drugs |
-5.3% |
2.6% |
-35 |
-32 |
|
NOV |
05/16/08 |
11.9% |
11.9% |
National-Oilwell Varco, Inc. |
Oil Well Services & Equipment |
-3.4% |
6.1% |
-22 |
-29 |
|
DRQ |
05/23/08 |
7.0% |
7.0% |
Dril-Quip, Inc. |
Oil Well Services & Equipment |
-0.9% |
9.1% |
-30 |
-21 |
John Templeton neither sponsors nor
endorses this information.
|
Passed Recent Filter |
|
Price declined by half of stop loss setting |
|
Oversold re Williams %R (%R2 = most
recent) |
|
Overbought
re Williams %R (%R2 = most recent) |
John Templeton Stock Filter
With the
long-running bull market a distant memory, many once
comfortable investors are suddenly wary; some are even
beginning to panic. Others are beginning to look for new
portfolio models and investment strategies that will
secure their futures. These investors might want to look
at one of the investment game's old veterans for comfort
and safety-value investing.
Value investing is the old stand-by. It is an investing
approach that is strictly adhered to by many investors. Perhaps considered
old-school by some, it is an ideology periodically reviewed in market
environments such as now. Studies show that value strategies often fare better
than growth strategies during bear markets and may even outperform growth
strategies in the long run when risk is considered.
Value investing concentrates on unappreciated stocks
trading at attractive prices-bargain stocks. Value investors search for stocks
that are attractively priced relative to some measure of intrinsic worth. They
most often look for solid companies whose stocks are trading at low multiples of
price relative to book value, cash flow, earnings, dividends, or sales. This
contrarian way of thinking looks for such stocks with the hopes that these low
multiples are temporary, that the company will withstand Wall Street's wrath,
and prices will eventually rise as Wall Street realizes the true worth of the
firm.
Sticking to the Faith
This is the investment philosophy adhered to by John
Templeton, one of the best-known investment advisors today. While in college,
Templeton studied under one of the forefathers of value investing, Benjamin
Graham. With that first security analysis course, Templeton caught the
contrarian bug and continued to train in the art of value investing. He was
always out bargain hunting. Templeton was the constant comparison
shopper-whether it was clothes, furniture, a home, or stocks, he always looked
for the best-priced bargains.
A benevolent and religious man, with his own foundation
dedicated to religious and spiritual progress, Templeton puts his faith in the
prospects of the companies he chooses and takes profits before any multiple can
over-inflate the stock's value. Oftentimes he sells before the peak, but
Templeton prefers to be on the safe side-especially when it is someone else's
money. Founder of the Templeton Mutual Fund Organization, he considers managing
money a sacred trust.
Strictly Contrarian
Templeton's long-standing strict contrarian nature was
illustrated at a 1991 Templeton Mutual Fund annual shareholders meeting.
Speaking at the podium, Templeton recommended a book to those in the audience
who considered themselves serious investors. The selection was a sobering
reality check to all in attendance: "Extraordinary Popular Delusions & the
Madness of Crowds," by psychologist Charles MacKay.
In his classic book, MacKay describes bubbles-periods
of extreme speculation in stocks, bonds, real estate, collectibles, and other
various types of investments. In a bubble, investors ignore company fundamentals
and buy on the buzz-hot topic noise, wild rumors, and cocktail party tips-paying
any price to become a player in the game. Eventually the collective buzz wears
off and the real value of the investment is recognized. Investors panic and
widespread selling causes the bubble to burst.
The book recommendation serves as a reminder that value
investing with a contrarian mind can be a rather difficult discipline. Notes
Templeton: "To buy when others are despondently selling and sell when others are
avidly buying requires the greatest fortitude and pays the greatest potential
reward."
New Investment Worlds
Templeton was given the moniker 'the Christopher
Columbus of investing' because of his ability to discover new worlds. He was one
of the first U.S. money managers to invest internationally, finding value in
global markets and among emerging nations. An ardent contrarian and value
investor, his focus was always domestic issues, but the scope of his searches
was not limited to U.S. market boundaries. Sometimes bargains were found in
Japan, other times Argentina. It did not matter. The goal was to seek out value,
finding only the best bargains-regardless of country origins.
For *Templeton, John stock screen, we focus solely on domestic listed issues.
Two books served as the basis for the creation of this
article and stock screen. Both books feature sections devoted to Templeton's
life and investing beliefs: "Lessons From the Legends of Wall Street," by Nikki
Ross, CFP (Dearborn Financial Publishing Inc., $25); and "Money Masters of Our
Time," by John Train (HarperCollins Publishers, Inc., $26).
Core Concepts
When implementing a value investing strategy, there are
a number of ways to create the screen. When screening for value in the form of
attractively priced stocks, however, the foundation is often low price-earnings
ratios. The *Templeton, John screen is no different, incorporating a low
price-earnings requirement as its base.
In some cases, stock screens with low price-earnings
ratios are supported by solid estimated earnings and sales growth. Other times
the above combination of criteria includes a strong dividend yield. The
dividend-adjusted price-earnings relative to growth ratio, or PEG ratio, is also
frequently used in value screens.
Future Probable Earnings
One difficulty in implementing a low price-earnings
ratio approach is separating the "good" companies-those that are simply
misunderstood by the market-from the ones that the market has accurately pegged
as being "losers." Many low price-earnings ratio stocks are in the bargain
basement because their industry, products, or earnings and growth prospects do
not excite investors.
Separating the good firms requires some additional,
supportive filtering factors. For Templeton, such support and confirmation comes
from what he calls future probable earnings, or forecasted earnings growth. From
Templeton's viewpoint, for any stock selection to be considered worthy, future
probable earnings need to be strongly favorable.
Several other key components to judging the quality of
the company, such as increasing earnings growth and operating margins, are
discussed below.
Industry Generalizations
In some instances, investors make unfair
generalizations about industries, and as a result, about individual stocks
within the segment. Quite often investors look at struggling industries and
swear off the entire group.
An example of this suffering for the problems of the
group is the retail industry. Retail stocks have become a favorite target of the
market's wrath as of late, some for very good reasons. With poor results during
the important holiday season, continued struggles in the first quarter of 2001
and the bearish outlook for the economy reflected in the low levels of consumer
spending, many investors have avoided this group. Value investors, however, may
see opportunities.
Screening Criteria
Templeton likes to compare current price-earnings
ratios to five-year average annual price-earnings figures when looking for the
lowest multiple stocks. There are two hidden aspects of this first screening
criterion: Not only does it require the current price-earnings ratio of the
stock to be lower than its five-year average, but in addition any passing
company must have been traded for at least five years and had positive annual
earnings per share for each of the last five fiscal years.
When screening against five-year averages, useless
numbers can sometimes slip through the cracks in a screening technique. Beyond
negative earnings, which lead to meaningless price-earnings ratios, unusually
low earnings may also throw off standard price-earnings ratio screens.
Short-term drops in earnings due to extraordinary events may lead to unusually
high price-earnings ratios. As long as the market interprets the earnings
decrease as temporary, the high price-earnings ratio will be supported.
Because the average price-earnings ratio model relies
on a normal situation, these "outlier" price-earnings ratios must be excluded.
To eliminate companies with these extreme
price-earnings ratios, an additional filter was applied to the Templeton
approach that excluded any stocks with ratios above 40 for any of the last five
fiscal years.
Templeton believes the income statement should show
consistent earnings growth as well. Earnings per share growth is one of the
primary benchmarks used to measure company performance. The Templeton screen looks for stocks with positive earnings growth over the last 12 months
and over the last five-year period. Beyond an overall growth figure, individual
investors should look at the year-to-year trends, since long-term growth rates
can easily mask the variability and risk of the underlying figures.
Examining the expected five-year growth estimate
captures Templeton's future probable earnings prerequisite. His desire for
consistent growth in the future is portrayed by a positive earnings growth
estimate filter.
Templeton also seeks companies with competitive
advantages. This can be detected by comparing a stock's forecasted earnings
growth figures to the forecasted growth of its industry; firms with earnings
growth estimates greater than or equal to the industry median more than likely
have a competitive advantage.
Earnings Stability
In addition to forecasted earnings growth rates,
Templeton feels increasing earnings are important. In replicating the Templeton
strategy here, only five years were required to remain consistent with the low
price-earnings ratio provision.
Rest of the Criteria
The next set of criteria concerns operating margin.
Operating margin, or gross profit margin, paints a picture of how efficiently
the company's management is operating within the framework of the company's
generated profits.
Templeton's emphasis here is recent stability and
consistent increases-in this case, however, over a shorter period: positive
operating margins over the last 12 months and for the latest fiscal year.
Continuing the competitive advantage theme, further
criteria for favorable operating margins were added. The screen required the
recent 12-month and current-year operating margins to be greater than or equal
to industry medians for the respective periods. Industry medians are
particularly important in this area as benchmarks because operating margins tend
to be very industry-specific.
Templeton also compared current operating margins to
previous margins. The additional filter required current operating margin to be
greater than the five-year historical average operating margin.
Screening for the most recent 12-month timeframe reduces the probability of ADR
stocks passing the filter, as ADRs are not required by the Securities Exchange
Commission (SEC) to post or file quarterly or monthly figures.
Financial Strength
Templeton also monitored the balance sheet, looking for
companies showing good financial strength. Templeton believes a strong financial
position enables any company to work through the difficult periods often
experienced by overlooked, out-of-favor stocks. Acceptable levels of debt vary
from industry to industry, and for that reason the last criterion screens for
companies with total liabilities relative to assets in the current quarter that
are below their industry norms. This particular ratio is used here because it
considers both short-term and long-term liabilities.
Again, since ADR stocks are not required to provide
quarterly results, screening for quarterly data limits the prospects from the
international stock group.
Qualitative Factors
In addition to researching company reports, pouring
over financial statements, and analyzing each stock's industry, Templeton also
placed a great deal of importance on several qualitative factors: quality
products; sound cost controls; and the intelligent use of earnings by management
in order to grow the firm.
Templeton also looked for any potential catalyst that
might change the perception of a stock and spark interest among star-gazing
investors, which in turn would cause the stock's price to rise. Catalyst-type
events include the creation of new markets and products and could also extend to
announced potential mergers and acquisitions, as well as favorable changes
within the company's industry.
Conclusion
During difficult financial times, many investors seek
shelter under the sturdy umbrella of a value investing approach.
"Be prepared emotionally and financially for bear
markets," warns Templeton. "If you are really a long-term investor, you will
view a bear market as an opportunity to make money."
Remember that fundamental stock screening is only
a starting-point, and the results of any screen are simply a list of companies
that meet a set of objective criteria. Before any investment decisions are made
about any passing stock, additional research and further analysis are necessary.
Selling
In
this implementation of Templeton's screen, as of 1/2/08
stocks are removed from the list when the PE exceeds 1.2
times the 5 year average, PE High exceeds 75, the 12
month EPS growth turns negative, the 12 month operating
margin turns negative or becomes less than the median
industry value or the total liabilities to assets Q1
exceeds that for the industry.
This
information is provided by AAII.