Despite the market volatility of the past 12 months, I've generally been able to report good outperformance from my stock screens as I've updated them during 2014, and it is nice to sign off with a real belter - my Have-It-All shares screen. Over the past 12 months the six stocks picked by the screen at the end of 2013 have delivered a 23 per cent total return, compared with 5 per cent from the FTSE All-Share. And this builds on earlier strong returns achieved by the strategy since I first came up with it back in December 2011. In fact, despite last year's impressive result, the performance was actually the weakest 12-month period from this screen.
All in all, the cumulative total return from the screen, excluding spreads and dealing costs, now stands at 130 per cent, compared with 40.8 per cent from the index. Or if a 1 per cent charge is factored in to account for spreads and costs, the return stands at 123 per cent (see chart below).
Have-It-All storms ahead
Source: Thomson Datastream
While the headline number produced by this year's screen is undeniably impressive, the volatile conditions experienced in 2014 meant that there were some noteworthy disappointments in the portfolio (see table below). Indeed, only half of the stocks outperformed the market, although fortunately the three stocks that did manage to outperform did so with real gusto. Meanwhile, the most noteworthy loser from last year's share picks was BHP, which delivered an 18 per cent negative total return and continues to be hammered due to its exposure to both the falling price of oil and of iron ore.
Have-It-All 2013
| Name | TIDM | Total return (3 Dec 2013 - 8 Dec 2014) |
|---|---|---|
| Provident Financial | PFG | 60% |
| Kentz* | KENZ | 59% |
| Micro Focus | MCRO | 45% |
| XP Power | XPP | -1.0% |
| Interserve | IRV | -6.9% |
| BHP Billiton | BLT | -18% |
| Average | - | 23% |
| FTSE All Share | - | 5.0% |
*Taken over during period under review. Source: Thomson Datastream
The screen itself embodies the kind of 'greed-is-good' philosophy that children tend to employ when writing their Christmas lists. Indeed, the screen requires shares to tick many of the classic boxes investors would expect from 'value', 'growth' and 'income' stocks. In fact, the list of attributes is so demanding that when I originally came up with the screen I warned that it may be asking for too much and could result in a large number of misfiring stock picks. So far, though, the screen has more than lived up to all the expectations I had for it at the outset.
While the screen does demand that shares meet a lot of criteria, these criteria are neither very sophisticated nor exacting. Also, some readers, depending on what their personal slant is on fundamental analysis, may find some glaring omissions in the criteria. Indeed, neither price-to-book-value (P/BV) nor price-to-sales (P/S) forms part of the stock selection process despite these being considered mainstays by many 'value' investors.
Even with these limitations on the screen's demands, though, the bad news this year is that no stock passed all of the eight Have-It-All tests. In fact, no stock even passed seven of the eight tests. That means this year I have been forced to focus on stocks that passed just six of the eight tests. In my opinion, valuation is a key factor for this screen, and I have therefore only allowed stocks into the 2014 Have-It-All portfolio if they pass at least one of the two value tests (a high yield or low forecast PE). The need to relax the criteria, and the focus on valuation over the screen's tests for 'quality', means the Have-It-All shares have a more contrarian feel about them than in previous years: more lowly valued but lower-quality stocks. Indeed, two of the stocks selected this year are from the oil services sector, an industry that could be savaged by continued oil price weakness but which stands to bounce significantly if oil breaks with the growing consensus and heads north.
The full criteria for the screen is:
■ Forecast next-12-months price-to-earnings (PE) ratio among the lowest third of all stocks screened. ■ Historic dividend yield in the highest third of all stocks screened. ■ Average forecast EPS growth in the next two financial years of 5 per cent or more. ■ 3-year EPS compound average growth rate (CAGR) of 10 per cent or more. ■ 3-year free-cash-flow CAGR of 10 per cent or more. ■ 3-year dividend CAGR of 5 per cent or more. ■ Return on equity (RoE) of 10 per cent or more. ■ 3-year average RoE of 15 per cent or more. |
I have limited my write-ups of the 11 qualifying stocks to the six shares that passed both of the screen's valuation tests. The other five stocks are listed in the table that follows.
ELEVEN STOCKS THAT (almost) HAVE IT ALL!
