My Monsters of Momentum screen has had another good year, with the 13 stocks selected in 2013 producing a 10.7 per cent total return compared with a negative 3.3 per cent from the FTSE All-Share (see table below). However, recent ructions in the market have made it harder to find new candidates for this year's portfolio.
HEAR THEM ROAR! - The Monsters of 2013
| Name | TIDM | Total return (29 Oct 2013 - 20 Oct 2014) |
|---|---|---|
| JD Sports | JD. | 52.2% |
| Staffline | STAF | 41.4% |
| Entertainment One | ETO | 31.1% |
| Renold | RNO | 17.6% |
| Capital & Regional | CAL | 8.7% |
| ITV | ITV | 8.2% |
| Aga Rangemaster | AGA | 6.8% |
| Clarkson | CKN | 3.0% |
| Clinigen | CLIN | -2.2% |
| Vertu Motors | VTU | -2.3% |
| Photo-Me International | PHTM | -5.4% |
| Carr's Milling | CRM | -5.9% |
| Jupiter Fund Management | JUP | -14.4% |
| Average | - | 10.7% |
| FTSE All Share | - | -3.3% |
Source: Thomson Datastream
The Monsters of Momentum screen uses what could be described as a "momentum- plus" approach to selecting stocks. Not only do shares need to be showing strong momentum against other FTSE All-Share peers - a classic momentum approach - but they also need to be showing progress against their own historic share price averages. In addition, average trading volumes need to be up on the prior year, which is an attempt to measure increased investor enthusiasm for the shares. These latter two tests are very hard for shares to pass when the market falls out of bed, as has recently happened. That's caused a major problem for this year's screen.
In fact, no shares passed all four of my Monsters of Momentum tests this year. In the four years I have run this screen there have been fallow periods before, but to get no results at all is a first. I therefore had to soften the criteria for the screen by only requiring shares to pass three of the four tests, although all must pass the classic price-momentum test, which requires a share to be among the top 10 per cent of risers over three months, the top quarter over six months and the top half over a year.
| The Monsters of Momentum screening criteria: ■ Price momentum: A share price rise in the top 10 per cent of shares screened over the past three months, in the top 25 per cent over six months, and in the top 50 per cent over a year. ■ Trend: The 10-day moving average must be above the 30-day, which in turn must be above the 100-day. ■ Earnings growth: Average forecast earnings growth for the next two financial years must be among the top quarter of all stocks screened. ■ Volume: Average daily volumes over the past three months must be above the level from a year ago. |
The relaxation of the criteria is definitely a 'needs must' change, and hopefully next year I will not have to resort to such tactics. But it would be a shame not to give the screen any kind of outing as the historic performance has been so impressive. Indeed, since I first ran the screen in late 2010 it has produced a cumulative total return (excluding dealing costs and share spreads) of 97 per cent, compared with 27 per cent from the FTSE All-Share (see graph below).
Source: Thomson Datastream
Hopefully the relaxation of the criteria will not be the screen's undoing. Ten stocks pass three tests in total. Of these, three have been ignored because they are in takeover situations - CSR, Spirit Pub Company and Synergy Health. The remaining seven are discussed below, with fundamentals in the table.
ANATOMY OF THE MONSTERS
| Name | TIDM | Market Cap | P | Fwd NTM PE | DY | PEG | P/BV | 3-month Momentum | 6-month Momentum | 1-year Momentum | Net Cash/Debt(-) |
|---|---|---|---|---|---|---|---|---|---|---|---|
| SkyePharma | SKP | £356m | 340p | 21 | - | 0.66 | 9.88 | 29.7% | 51.2% | 275.8% | -£3m |
| Marshalls | MSLH | £367m | 187p | 21 | 2.9% | 0.93 | 2.11 | 16.9% | 6.2% | 7.5% | -£51m |
| Carnival | CCL | £17bn | 2,246p | 17 | 2.7% | 1.38 | 1.15 | 11.9% | 5.1% | 12.1% | -£8.5bn |
| Persimmon | PSN | £4.2bn | 1,358p | 10 | 5.2% | 0.50 | 2.06 | 11.6% | 7.6% | 11.2% | £326m |
| Dignity | DTY | £826m | 1,539p | 19 | 1.2% | 1.55 | 13.84 | 10.9% | 6.7% | 12.6% | -£394m |
| John Laing Infr. Fd. | JLIF | £1.0bn | 123p | - | 5.3% | - | 0.00 | 7.0% | 5.8% | 7.0% | - |
| Ashtead | AHT | £4.7bn | 937p | 16 | 1.2% | 1.00 | 5.35 | 6.6% | 7.7% | 46.9% | -£1.3bn |
Source: S&P CapitalIQ
