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Zweig screen update

Created:
12 May 2008
Written by:
David Stevenson

April was another very solid month for this portfolio, up over 4 per cent in the last month. Total gains across the portfolio, including losses on sold stocks, now totals 32.47 per cent. On current holdings only, the average gain is 55 per cent overall and it's worth noting that amongst our very latest buys - stocks recommended in the last few months - all bar Stanley Gibbons are up, with an average gain of just under 4 per cent.

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This month I've found one new addition to the portfolio - and I'm recommending taking some profits on some of our star resource outfits:

• Take profits on Tullow Oil (up 240 per cent) and BHP Billiton (up 142 per cent). I think that both these companies are currently over-valued. Both are great companies, but Tullow now trades at 51 times its current earnings, while BHPBilliton, embroiled in a protracted bid struggle with rival Rio Tinto, is on 17 times earnings. The price rises seen above are way above those of companies like Dragon Oil or JKX Oil & Gas, which have far more scope to add to reserves and production.

• Buy Stagecoach . This Scottish transport conglomerate is rightly regarded by the city as 'best in class'. To understand why, you only have to look at its latest results from the end of April which showed that trading since late February has 'exceeded expectations' and its outlook is 'positive'. By far the most valuable bit of the business is the commuter rail business, ferrying commuters from Surrey and Hampshire into London Waterloo, plus its stake in Virgin Rail. What seems to be especially gratifying about these recent results is that profits look like they're set to exceed market expectations despite the huge increase in oil costs. If the price of oil starts to fall later this year, as I expect it to, Stagecoach could do even better, maybe pushing earnings above 25p a share, implying EPS growth of beyond 20 per cent. Buy at 250p a share.

Latest Zweig portfolio stats

Name EPIC Return (%) Notes Close
Axon Group PLC AXO 60.7 5.255
Babcock International Group PLC BAB 7.6 5.98
BHP Billiton PLC BLT 142.2 19.4
Detica Group PLC DCA 29.8 3.115
Dragon Oil PLC DGO 34.3 5.6
Goals Soccer Centres PLC GOAL 17.2 2.78
Tullow Oil PLC TLW 240.9 9.205
Vedanta Resources PLC VED 332.3 24.47
JKX Oil & Gas PLC JKX 31.9 5.04
John Wood Group PLC WG. 16.2 4.4725
Ashmore Group PLC ASHM 12 2.9525
RECENT BUYS
Stanley Gibbons Group (The) Ltd SGI -1.8 1.915
NCC Group PLC NCC 2.9 3.91
Homeserve PLC HSV 6.5 20.57
Connaught PLC CNT 5.2 4.165
Aggreko PLC AGK 5.9 6.345
Velti PLC VEL 4.9 1.7
Care UK PLC CUK -27 SOLD  4.505
Croda International PLC CRDA -20 SOLD  7.15
CSR PLC CSR -34 SOLD  3.18
Loanmakers Holdings PLC LMH -50 SOLD  0.0475
ROK PLC ROK -48.3 SOLD  1.2975
PlusNet PLC PNT -22.6 TAKEN OVER 2.075
Average 32.47

Meanwhile, the market has continued to stabilize in the last four weeks, pushing past 6000 points ahd heading for 6300. However, this hasn't changed my view, which remains that the market will correct.

The recent spike in the FTSE 100 is all down to commodities stocks, as the table below shows. Nine out of the top ten gainers in the FTSE are miners or oil producers - only British Energy, a bid target, is not. If you look at all the resource stocks in the FTSE, they've clocked up a 24 per cent gain. That's equivalent to between 450 and 500 points on the FTSE 100.

Name Close Price rise (%)
Over 1 month Over 3 months
Eurasian Natural Resources 13.1 48.02 105.17
BHP Billiton 18.49 35.86 33.41
Antofagasta 8.085 29.98 27.83
Rio Tinto 61.93 29.02 37.04
Anglo American 34.08 27.5 24.88
Vedanta Resources 23.63 24.24 38.51
BG Group 12.77 23.14 27.32
British Energy 7.53 21.26 53.13
Tullow Oil 7.45 20.65 30.7
Royal Dutch Shell 19.22 20.28 6.84
27.995

Any sign that the commodities boom is waning will puncture this buoyancy and the market will sink like a lead weight.

ZWEIG SCREEN BASICS...

This is a classic, higher risk, growth screen with a twist - based on the writings of American investing guru Martin Zweig, it insists on buying fast growing companies where earnings growth is accelerating but the share price is still relatively cheap.

Look for:

• EPS growth in current year is at least 20 per cent

• EPS growth over last 3 years is at least 15 per cent

• EPS growth over last five years is at least 10 per cent. With all these three figures put them side by side and look for evidence of earnings acceleration i.e current EPS growth rate more than 3 year and preferably more than 5 year rate

• Relative strength (of the share price ) over last one year , and the last 3 months, should be at least positive

• PER should be above 5 and below 40

• PEG below 1

• Sales per share trend above 10 per cent i.e sales growing

• Market cap set at a minimum of £35m

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