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Four shares that have it all

My Have-It-All stock screen managed a 6.4 per cent return over the past year compared with a dismal 0.2 per cent from the FTSE All-Share. Find out which shares made the grade for 2016
January 19, 2016

When I last ran my Have-It-All screen I struggled to find stocks that satisfied all its criteria. Arguably this has been reflected in a less than convincing showing from the 11 stocks the screen highlighted at the end of 2014. Together, the shares - none of which met the full screening criteria - produced a 6.4 per cent total return compared with 0.2 per cent from the FTSE All-Share.

NameTIDMTotal return (17 Dec 2014 - 13 Jan 2016)
BerkeleyBKG61.0%
KComKCom43.3%
LookersLOOK36.9%
Galliford TryGFRD32.6%
XP PowerXPP9.6%
PayPointPAY6.6%
InterserveIRV-3.3%
LSL Property ServicesLSL-5.5%
GKNGKN-10.0%
WeirWEIR-49.6%
Amec Foster WheelerAMFW-51.5%
Average-6.4%
FTSE All-Share-0.2%

Source: Thomson Datastream

 

The good news is that following recent market ructions, the screen has been more fruitful in finding shares that meet its criteria than it was last time. That said, it remains the case that no stock could pass all of the screen's eight tests. However, four stocks managed to pass seven of the tests compared with none last time. What's more, some of the stocks highlighted by the screen failed to qualify on certain tests due to data quirks. Housebuilder Persimmon, for example, is not judged to have passed the dividend growth test despite its fantastic record as an income stock over recent years. This is because its capital returns, for understandable reasons, are not classified as conventional dividends by the data supplier.

While the return from last year's screen was not amazing, it was by no means a disaster. What's more, it builds on strong outperformance over the previous three years. Indeed, the cumulative total return from the screen, based on switching from one set of stock ideas to the next on publication date each year, now stands at 134 per cent compared with 34.4 per cent from the FTSE All-Share, and the screen has outperformed in each of the four years I've monitored it. If a 1 per cent charge is factored in to account for dealing costs, the return stands at 125 per cent.

 

Have-It-All versus FTSE All-Share

 

 

Year to Dec/JanFTSE All-ShareHave-It-AllOutperformance
201214.4%30.6%14.2%
201317.2%43.3%22.3%
20140.1%17.5%17.5%
20160.2%6.4%6.1%

Source: Thomson Datastream

 

The basic idea behind this screen - I'm under no illusions about its lack of sophistication - is simply to throw in a whole lot of what investors typically want from a stock and see what comes out the other end. But while this screen looks for shares with many of the favourite characteristics sought by 'value', 'income' and 'growth' investors, the individual tests are not too demanding. The growth rates the screen looks for, for example, hardly require stocks to shoot the lights out. What's more, the screen's valuation criteria are unashamedly unimaginative, focusing on low PE and high dividend yield. The screen also gives a free pass to companies with high debt and doesn't look for positive share price momentum to confirm the apparent attractions on offer. Instead, the main focus is simply on finding 'cheap', dividend-paying shares belonging to companies with decent growth expectations and growth records. The full criteria 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.

■ Three-year EPS compound average growth rate (CAGR) of 10 per cent or more.

■ Three-year free cash flow CAGR of 10 per cent or more.

■ Three-year dividend CAGR of 5 per cent or more.

■ Return on equity (RoE) of 10 per cent or more.

■ Three-year average RoE of 15 per cent or more.

The four stocks that passed seven of the eight screen tests are given write-ups below. Fundamentals for these stocks along with the stocks that passed six of the eight tests - including at least one of the two valuation tests (low PE or high yield) - are given in the table that follows.

 

FOUR SHARES THAT (nearly) HAVE IT ALL