Never before has the old caveat about stock screens been more true: screens are the starting point for further research. Our growth at a reasonable price (GARP) screen attempts to highlight companies with a reasonable track record of growth, and prospects to continue positive trends, but that are still not overly expensive. With positive forecasts obliterated, it is interesting to note mainly Aim companies scoring relatively well against our small cap tests. This could be due to them getting less analyst coverage, so maybe earnings potential has taken longer to be assessed, or it could be that investors with more of a risk appetite remain optimistic.
- No FTSE All Share companies pass more than 6/8 of our GARP tests this month. Only two companies worth more than £1bn pass this many of the tests designed for larger companies. These are storage specialist Big Yellow Group (BYG) and transport operative National Express Group (NEX). Clearly transport businesses are risky right now but Phil Oakley made some interesting points about NEX in his weekly Alpha round-up last Friday.
- Our GARP criteria for small caps are slightly different, with seven tests in total. Three main market companies pass all of these. The small cap list includes some specialist real estate investment trusts (reits) but investors should beware of special idiosyncratic risks here, as there is scope for tenants to possibly get into trouble.
- Clearly, buying in requires high risk tolerance right now but there are interesting companies being flagged on our Aim screen, which uses the seven small company tests. Some companies have business models that are seriously compromised by the lockdown but those that don’t fail the net debt or cash conversion tests may be resilient enough.