Five shares with upside

Mr Kirkpatrick does not think it is possible to call the market, so the screens' results should still have merit even if the recent pause in the rally marks a turning point. It is worth noting that in rising markets he found the growth screen to be more effective while the value screen worked better in falling markets.

Another important aspect of this screen to understand that it is based on active portfolio management (rebalancing a portfolio on a monthly or weekly basis). While this level of activity may sound arduous, it is Mr Kirkpatrick's belief that simply sticking rigidly to the mechanical stock selection process he recommends will produce outperformance, so the whole process should only take a couple of hours a week/month once the right data is sourced.

The relative strength measure Mr Kirkpatrick uses is regarded by him as a short-term guide to future performance. In fact, he found it had minimal effectiveness at predicting share prices over a period of as long as a year or more. So while we have taken a closer look at the stocks selected by the screen below (three of which are rated buys based on the IC's fundamental analysis), this week's column is perhaps best regarded as a taster of a process that readers could choose to pursue independently rather than an exercise in buy-and-hold, stock-idea generation, which is what we usually try to provide with our screens.

The screens designed by Mr Kirkpatrick were created for the US market so we have had to adapt them for the London market by swapping quarterly for half-yearly reporting periods and reinterpreting his suggested minimums for market capitalisation and share price. This is how the screens work. We've screened all stocks in the FTSE All-Share and FTSE AIM 100.

Growth

■ Select all stocks with positive earnings over the periods examined, a market capitalisation of £200m or above and a share price of 50p or more.

Then screen to find stocks satisfying the following two criteria:

■ The top tenth of shares based on share price relative to the 26-week moving average (calculated using weekly closing prices);

■ The top tenth of shares based on growth in operating profits (calculated by comparing the most recent half year operating profit plus the operating profits from the previous half year against operating profits from the previous half year plus operating profits from the half-year period before that).

Value

The value screen is designed to be more defensive than the growth screen and protect investors in a falling market. The valuation metric of price-to-sales growth is viewed as a good one by Mr Kirkpatrick as it is hard for a company to massage reported sales, and research suggests it is a very effective predictor of future share price movements. This is how the screen works:

■ Select the tenth of stocks with the lowest price-to-sales ratio (PSR) on the market which have market capitalisations of more than £100m and share prices greater than 50p;

■ Then screen for the same criteria as the Growth screen.

Bargain

A bargain share isn't the cheapest on the market in Mr Kirkpatrick's view. It is one that is lowly, but reasonably priced.

■ Select stocks with market capitalisations of more than £100m and share prices greater than 50p - Mr Kirkpatrick actually recommends using the same criteria as the growth screen here ($1bn market capitalisation and $10 share price), but we've used the value criteria instead in order to get any positive results from the screen.

Then screen for:

■ The top 3 per cent of relative price performance;

■ Stocks with PSR above the lowest 17 per cent of the market and below the lowest 42 per cent.

FIVE STOCKS ON THE UP

Plexus - Growth

The attraction of the growth story presented by oil and gas wellhead-sealing technology specialist Plexus was brought to the fore by the Macondo oil spill in the Gulf of Mexico. Regulatory pressure has left the industry looking for innovations that will improve safety, and that is exactly what Plexus's POS-GRIP technology offers. Work is stacking up for its existing surface wellhead technology as its 'best-in-class' reputation grows. But growth prospects could be transformed by its project to adapt its technology for subsea wellheads. It has recruited a very impressive roster of international oil majors as development partners, including the likes of Shell and TOTAL, which has fuelled the belief that there is significant commercial potential in the venture.

source: S&P Capital IQ

Last IC view: Buy, 172p, 9 Oct 2012

Trinity Mirror - Bargain

From a forecast PE ratio perspective, Trinity Mirror's shares certainly look like they represent a bargain. The group faces issues, though; print media is declining, debt is high and there is the matter of a £283m pension deficit to consider. However, the recent strong share price run and appointment of new chief executive Simon Fox suggest investors' views of the company are changing from one of 'glass half empty' to 'glass half full'. The company is making good progress reducing debt and Mr Fox believes there is unrealised potential in the company's operations. Restructuring is also under way and circulation and advertising spending declines look like they are abating. The possible resumption of dividend payments has the potential to create positive sentiment. Broker Panmure Gordon, which highlights share buy-backs as a major potential positive for the media sector in 2013, believes the company "should clearly be buying back shares".

Last IC view: Hold, 38p, 3 Aug 2012

Dart - Value

Despite the recent strong share price run, the multiple commanded by shares in budget airline and package holiday group Dart looks measly when compared with growth expectations and its strong financial position. In fact, if the company's November half-year results are anything to go by, brokers could be underestimating the growth potential. The first half saw a doubling in Jet2Holiday bookings, which helped drive a 23 per cent rise in revenues for its Jet2.com budget airline. Costs have been rising and, like all airlines, the oil price will have a major influence on the company's performance in 2013.

Last IC view: Buy, 111p, 23 Nov 2012

SIG - Value

Sentiment has warmed towards building materials group SIG on the basis that the company may be over the worst point in its business cycle. In fact, a recent full-year update pointed to profits before tax coming in slightly ahead of most brokers' expectations. The recent performance has been buoyed by relative resilience in mainland Europe, where about half of sales are generated, and business from UK energy companies trying to insulate customers' homes in order to hit energy-saving targets set by the government under the CERT scheme. Energy-saving regulation means SIG's insulation operation has structural growth attractions, although a recent change in regulation means a temporary order hiatus is likely as energy companies adjust to the new regime. While the outlook for 2013 is cautious, the company is expected to benefit from cost savings and attempts to sell loss-making Czech and Slovak businesses. And in the longer term there should be cyclical upside.

Last IC view: Hold, 97p, 23 Aug 2012

Barratt Developments - Value

Despite a monumental 123 per cent share price rise in 2012 and more since the start of the new year, this is the second time in two weeks that Barratt Developments' shares have been picked out by one of our value screens ('Six Hot Recovery Plays', 9 Jan 2013). A very strong year-end trading update this month underlined the attractions of the company at the current stage in the cycle and triggered further EPS forecast upgrades by brokers. In common with housebuilding peers, Barratt is in the enviable position of building on land it bought cheaply at the bottom of the cycle while selling its houses into a rising market. A number of company-specific issues that had weighed on the shares, associated with debt levels, write-downs and off balance-sheet financing, have also subsided. Broker Numis forecasts 2013 net asset value of 232p - about the same as the current share price.

Last IC view: Buy 159p, 12 Sep 2012