My Screen for All Seasons experiment is proving rather disappointing. The idea is to see whether six screens with diverse characteristics can outperform the market with reasonable consistency. While it is very early days (year two), it is fair to say that neither objective is being met.
It is important to point out that the idea behind this screen may simply be duff. Alternatively, it may be a worthwhile endeavour that’s being undermined by poor execution on my part. Both are very possible. However, it is also possible that the performance of the screen says something about how narrow the market’s focus has become over the past few years. Indeed, one interpretation of the screen’s performance over the past year is that buying quality at any price is becoming the only game in town. This chimes with the trends I found when conducting my 2018 stock screen review and more recently my annual Strategy Screen.
The Screen for All Season is based on selecting 10 stocks from six different screens that attempt to mimic distinct investment styles. The standout feature from last year is that only one of the screening strategies delivered a positive performance. The screen in question was the one that was most focused on quality – the Big Reliables screen. The 10 stocks selected by this screen delivered a total return of 12 per cent against a negative 5.8 per cent from a 50:50 split between the FTSE All-Share and Aim All-Share. The average of the six screens was a negative 6.1 per cent. One noteworthy feature of the Big Reliables screen is that it pays no attention whatsoever to valuation. What it looks for is consistent earnings growth, cash conversion, conservative gearing and solid returns on equity.
The other shares that put in an alright showing relative to the market were both focused on growth. But the screens that really came a cropper were value focused. Arguably the most value-focused screen which uses the cyclically adjusted price/earnings ratio (CAPE), put in a particularly ugly performance with a negative total return of 17 per cent. While some of this reflects investors' current tastes and willingness to pay high prices for shares in quality companies, there are also reasons to think the travails of value reflect the high-tech disruption faced by traditional players in a number of industries. It should also be remembered, screening without additional qualitative analysis can be rather crude in its stock selection especially when fishing in out-of-favour waters.
The performance of all six screens from last year can be seen below:
SCREEN | Name | TIDM | Total return (14 May 2018 - 21 May 2019) |
GRT EXP | Symphony Environmental Technologies | sym RI) | -67% |
GRT EXP | AB Dynamics | abdp (RI) | 149% |
GRT EXP | EVRAZ | evr (RI) | 40% |
GRT EXP | Plus500 | plus (RI) | -58% |
GRT EXP | Burford Capital | bur (RI) | 0.8% |
GRT EXP | Griffin Mining | gfm (RI) | -43% |
GRT EXP | Keywords Studios | kws (RI) | -7.3% |
GRT EXP | Fenner | fenr (RI) | 0.2% |
GRT EXP | Parity Group | pty (RI) | -44% |
GRT EXP | Fevertree Drinks | fevr (RI) | -0.6% |
GRT EXP | - | - | -3.2% |
BIG REL | DCC | dcc (RI) | -0.2% |
BIG REL | Halma | hlma (RI) | 42% |
BIG REL | JD Sports Fashion | jd. (RI) | 61% |
BIG REL | Abcam | abc (RI) | 12% |
BIG REL | WH Smith | smwh (RI) | 4.6% |
BIG REL | Breedon Group | bree (RI) | -9.9% |
BIG REL | Marshalls | mslh (RI) | 63% |
BIG REL | GB Group | gbg (RI) | 12% |
BIG REL | XP Power | xpp (RI) | -29% |
BIG REL | Photo-Me International | phtm (RI) | -36% |
BIG REL | - | - | 12% |
NEFF | Macfarlane Group | macf (RI) | 23% |
NEFF | PageGroup | page (RI) | 1.5% |
NEFF | Central Asia Metals | caml (RI) | -17% |
NEFF | RPC Group | rpc (RI) | 5.5% |
NEFF | S&U | sus (RI) | -16% |
NEFF | Bovis Homes Group | bvs (RI) | -9.3% |
NEFF | Somero Enterprises | som (RI) | -5.3% |
NEFF | Paragon Banking Group | pag (RI) | -9.4% |
NEFF | Howden Joinery Group | hwdn (RI) | 4.5% |
NEFF | Ashtead Group | aht (RI) | -7.9% |
NEFF | - | - | -3.1% |
SAFE YLD | PageGroup | page (RI) | 1.5% |
SAFE YLD | Legal & General Group | lgen (RI) | 4.0% |
SAFE YLD | Playtech | ptec (RI) | -48% |
SAFE YLD | Telecom Plus | tep (RI) | 45% |
SAFE YLD | Crest Nicholson Holdings | crst (RI) | -16% |
SAFE YLD | Telford Homes | tef (RI) | -39% |
SAFE YLD | S&U | sus (RI) | -16% |
SAFE YLD | Persimmon | psn (RI) | -16% |
SAFE YLD | Premier Asset Management Group | pam (RI) | -16% |
SAFE YLD | Barratt Developments | bdev (RI) | 18% |
SAFE YLD | - | - | -8.3% |
EV/SALES | Drax Group | drx RI) | -1.0% |
EV/SALES | Dialight | dia (RI) | -5.6% |
EV/SALES | Dixons Carphone | dc. (RI) | -41% |
EV/SALES | Phoenix Group | phnx (RI) | 2.8% |
EV/SALES | The Rank Group | rnk (RI) | -3.5% |
EV/SALES | The Restaurant Group | rtn (RI) | -38% |
EV/SALES | Bloomsbury Publishing | bmy (RI) | 23% |
EV/SALES | Majestic Wine | wine (RI) | -36% |
EV/SALES | Charles Taylor | ctr (RI) | -24% |
EV/SALES | Galliford Try | gfrd (RI) | -29% |
EV/SALES | - | - | -15% |
CAPE (1.8) | CPP Group | cpp (RI) | -55% |
CAPE (3.2) | EVRAZ | evr (RI) | 40% |
CAPE (7) | Ferrexpo | fxpo (RI) | -1.0% |
CAPE (7) | Caledonia Mining Corporation | cmcl (RI) | -34% |
CAPE (6.3) | Kakuzi | kaku (RI) | 5.6% |
CAPE (8.2) | Record | rec (RI) | -26% |
CAPE (9.6) | LSL Property Services | lsl (RI) | -8.1% |
CAPE (0.1) | Impellam Group | ipel (RI) | -16% |
CAPE (8) | Anglo American | aal (RI) | 10% |
CAPE (5.4) | Centrica | cna (RI) | -29% |
CAPE (8.7) | Low & Bonar | lwb RI) | -78% |
CAPE | - | - | -17% |
FTSE All-Share | - | - | -1.2% |
FTSE Aim All-Share | - | - | -10% |
FTSE All-Share/Aim | - | - | -5.8% |
Screens for all seasons | - | - | -6.1% |
Source: Thomson Datastream
The broad message from the Screen for All Seasons would seem to be the market mood is to buy quality at any price. Growth-focused styles are likely to benefit, too, because quality companies generally offer good growth. Meanwhile, value investing seems very out of favour as a style. But looking to the future, investors may be wise to bear in mind is that while style trends can persist for some time, the music inevitably changes at some point. That could prove a particularly important consideration just now, given there seems to have been a pronounced narrowing of the market’s focus around the quality theme.
Following a less-than-inspiring turn last year, which followed a poor first outing, the screen boast an is-it-really-worth-the-effort total return of 0.6 per cent compared with 2.4 per cent from a split between the FTSE All-Share and Aim All-Share. If I add in a 1.5 per cent charge to account for notional dealing costs (the screens run in this column are presented as a source of ideas for further research rather than off-the-shelf portfolios) the total return from the Screen for All Season is a negative 2.4 per cent.
The criteria for the six screens are explained below along with the additional filters used to choose the top 10 shares from each screen. When fewer than 10 stocks pass all of a screen's tests, the number of results are boosted with stocks that pass all but one test. The results from all the screens along with some fundamentals relating to the stocks can be found in the accompanying table.
The screens
Great Expectations
■ EPS forecasts for each of the next two financial years upgraded by at least 10 per cent over the preceding 12 months.
■ EPS growth of 10 per cent or more forecast for each of the next two financial years.
■ Share price momentum at least double that of the market over the past year and better than the market over the past six months, three months and one month.
Additional filter
■ The most attractive stocks have been selected based on a combined ranking of EPS upgrades and three-month price momentum.
Screen source: S&P CapitalIQ
Big Reliable
■ EPS growth in each of the past five years.
■ Return on equity (RoE) of 12 per cent or more in each of the past five years.
■ Forecast earnings growth in the current financial year and the year after.
■ Gearing of less than 50 per cent, or net debt of less than two times cash profits.
■ Cash conversion (cash from operations as a proportion of operating profits) of 90 per cent or more.
Additional filter
■ Ten largest market caps
Screen source: S&P Capital IQ
Neff
■ Historic price/earnings ratio (PE) below the most expensive quarter of shares and above the cheapest quarter.
■ A lower than median average Neff PEG ratio:
Neff PEG is calculated as the price/earnings (PE) ratio divided by EPS growth (an average of the five-year compound average growth rate and average forecast for the next two years) and historic dividend yield.
Neff PEG = PE / (EPS grth + DY)
■ A five-year EPS compound average growth rate (CAGR) of more than 7.5 per cent, but below 20 per cent (excessive growth can fall off).
■ Average forecast EPS growth for the next two financial years of more than 7.5 per cent.
■ Rising EPS in each of the past two half-year periods.
■ Five-year turnover CAGR of 5 per cent or more (in the long term, earnings growth needs to be based on rising sales).
■ Positive free cash flow in each of the past three years.
Additional filter
■ The most attractive stocks have been selected based on combined ranking of Neff PEG and the EPS growth rate used in the ratio.
Screen source: S&P Capital IQ
Safe Yield
■ Dividend yield of at least 3 per cent.
■ Dividend cover of at least two times.
■ Interest cover of at least five times.
■ Dividend growth in each of the past three years.
■ Forecast earnings growth in each of the next two financial years.
■ An average return on equity over the past three years of at least 12.5 per cent.
■ Cash conversion (measured as cash from operations as a percentage of operating profit) of over 100 per cent.
■ A market capitalisation of at least £250m.
■ Beta of 0.75 or less.
Additional filter
■ The most attractive stocks have been selected based on combined ranking of dividend yield and forecast average EPS growth over the next two financial years.
Screen source: S&P Capital IQ
EV/Sales Recovery
■ EV/Sales of less than 1.
■ Five-year compound average annual sales growth rate of 7 per cent or more.
■ Forecast sales growth in each of the next two financial years.
■ An average operating profit margin of at least 10 per cent over the past five years.
■ Positive free cash flow.
■ Gearing of less than 50 per cent, or net debt of less than two times cash profits.
Additional filter
■ The most attractive stocks have been selected based on combined ranking of EV-to-sales and historic operating margins.
Screen source: S&P Capital IQ
Cape screen
■ Market capitalisation of more than £100m.
■ Net debt less than 2.5 times cash profits.
■ Average five-year operating cash conversion of more than 100 per cent or average five-year free cash conversion of more than 90 per cent.
Additional filter
■ Top 10 out of the 50 lowest-CAPE shares (excluding shares with suspiciously low CAPEs of 3 or less) are selected based on their combined ranking for CAPE and 5-year average return on capital employed.
Screen source: Sharepad
The stocks
Screen | Name | TIDM | Mkt cap | Price | Fwd NTM PE | DY | Neff PEG | EV/sales | RoE | Fwd EPS grth FY+1 | Fwd EPS grth FY+2 | 3-month upgrade/downgrade | 3-month momentum | Net cash/debt (-)* | Net debt/Ebitda |
GRT EXP | AB Dynamics Plc | AIM:ABDP | £525m | 2,670p | 49 | 0.1% | 2.0 | 11 | 27% | 43% | 14% | 13% | 74% | £19m | - |
GRT EXP | Gamma Communications plc | AIM:GAMA | £1.1bn | 1,130p | 32 | 0.8% | 1.8 | 3.6 | 26% | 17% | 12% | 1.4% | 35% | £31m | - |
GRT EXP | Water Intelligence plc | AIM:WATR | £51m | 350p | 30 | - | 2.8 | 2.5 | 14% | 25% | 11% | 7.4% | 14% | £2m | - |
GRT EXP | Robinson plc | AIM:RBN | £14m | 86p | 10 | 6.4% | 0.7 | 0.7 | 3.0% | 152% | -5.4% | 35% | 30% | -£9m | 2.7 |
GRT EXP | Augean plc | AIM:AUG | £111m | 107p | 11 | - | 0.8 | 1.3 | 15% | 19% | 1.9% | 11% | 28% | £8m | - |
GRT EXP | Softcat plc | LSE:SCT | £1.8bn | 933p | 28 | 3.0% | 4.2 | 1.5 | 83% | 14% | 5.6% | - | 25% | £53m | - |
GRT EXP | Dewhurst PLC | AIM:DWHT | £74m | 1,125p | 16 | 1.1% | 0.8 | 1.2 | 12% | 37% | 2.2% | - | 25% | £9m | - |
GRT EXP | JD Sports Fashion plc | LSE:JD. | £6.0bn | 611p | 19 | 0.3% | 0.9 | 1.2 | 28% | 15% | 9.4% | 4.8% | 29% | £125m | - |
GRT EXP | Greggs plc | LSE:GRG | £2.1bn | 2,090p | 24 | 1.7% | 1.6 | 2.0 | 21% | 22% | 5.3% | 11% | 19% | £88m | - |
GRT EXP | Sanderson Group plc | AIM:SND | £69m | 115p | 14 | 2.6% | 1.7 | 1.9 | 11% | 6.7% | 12% | 0.7% | 17% | £3m | - |
BIG REL | Compass Group PLC | LSE:CPG | £29bn | 1,817p | 21 | 2.1% | 1.5 | 1.4 | 46% | 7.7% | 6.3% | - | 4.8% | -£3.7bn | 1.6 |
BIG REL | Carnival plc | LSE:CCL | £27bn | 3,948p | 11 | 4.0% | 0.5 | 2.4 | 13% | 7.2% | 13% | - | -9.6% | -£8.2bn | 2.0 |
BIG REL | DCC plc | LSE:DCC | £6.7bn | 6,820p | 18 | 2.0% | 2.2 | 0.5 | 13% | 4.0% | 3.7% | -0.3% | 3.5% | -£230m | 0.4 |
BIG REL | Halma plc | LSE:HLMA | £6.9bn | 1,808p | 34 | 0.8% | 3.4 | 6.1 | 20% | 12% | 7.9% | -0.4% | 20% | -£195m | 0.7 |
BIG REL | JD Sports Fashion plc | LSE:JD. | £6.0bn | 611p | 19 | 0.3% | 0.9 | 1.2 | 28% | 15% | 9.4% | 4.8% | 29% | £125m | - |
BIG REL | HomeServe plc | LSE:HSV | £4.0bn | 1,217p | 30 | 1.8% | 1.1 | 4.3 | 19% | 8.4% | 8.1% | 0.7% | 25% | -£305m | 1.6 |
BIG REL | boohoo group plc | AIM:BOO | £2.7bn | 234p | 46 | - | 6.3 | 3.0 | 20% | 21% | 21% | -0.6% | 37% | £191m | - |
BIG REL | Moneysupermarket.com Group PLC | LSE:MONY | £2.0bn | 367p | 20 | 3.0% | 1.4 | 5.5 | 47% | 5.5% | 8.1% | -0.1% | 11% | £30m | - |
BIG REL | Marshalls plc | LSE:MSLH | £1.3bn | 661p | 23 | 1.8% | 1.2 | 2.7 | 20% | 8.8% | 5.9% | 3.2% | 25% | -£37m | 0.5 |
BIG REL | Breedon Group plc | AIM:BREE | £1.3bn | 75p | 15 | - | 0.9 | 1.8 | 10% | 8.7% | 11% | 0.5% | 14% | -£311m | 2.0 |
NEFF | Macfarlane Group PLC | LSE:MACF | £165m | 105p | 13 | 2.2% | 1.0 | 0.8 | 15% | 40% | 1.8% | 2.2% | 16% | -£13m | 0.8 |
NEFF | PageGroup plc | LSE:PAGE | £1.6bn | 517p | 14 | 5.0% | 0.8 | 1.0 | 35% | 14% | 9.3% | 0.8% | 15% | £98m | - |
NEFF | Robert Walters plc | LSE:RWA | £465m | 650p | 13 | 2.3% | 0.5 | 0.3 | 26% | 10% | 6.7% | 2.8% | 20% | £74m | - |
NEFF | Marshalls plc | LSE:MSLH | £1.3bn | 661p | 23 | 1.8% | 1.2 | 2.7 | 20% | 8.8% | 5.9% | 3.2% | 25% | -£37m | 0.5 |
NEFF | Grafton Group plc | LSE:GFTU | £2.1bn | 877p | 13 | 2.1% | 1.0 | 0.7 | 12% | 0.6% | 7.7% | 5.4% | 14% | -£53m | 0.2 |
NEFF | Unilever PLC | LSE:ULVR | £126bn | 4,839p | 21 | 2.8% | 1.0 | 3.2 | 74% | 7.9% | 8.4% | - | 17% | -£19bn | 1.5 |
NEFF | MJ Gleeson plc | LSE:GLE | £478m | 876p | 15 | 3.7% | 0.8 | 1.9 | 20% | 8.1% | 10% | 0.0% | 13% | £28m | - |
NEFF | Electrocomponents plc | LSE:ECM | £2.8bn | 630p | 16 | 2.3% | 1.3 | 1.5 | 28% | 9.7% | 6.6% | 3.6% | 11% | -£124m | 0.5 |
NEFF | Primary Health Properties Plc | LSE:PHP | £1.5bn | 132p | 23 | 4.2% | 1.0 | 27 | 11% | 9.8% | 5.9% | 1.3% | 10% | -£688m | 0.0 |
NEFF | Paragon Banking Group PLC | LSE:PAG | £1.1bn | 440p | 8 | 4.4% | 0.6 | 0.0 | 13% | 6.5% | 7.8% | - | 3.0% | -£5.7bn | - |
SAFE YLD | Vp plc | LSE:VP. | £282m | 714p | 7 | 3.6% | 0.7 | 1.3 | 17% | 16% | 6.0% | - | -31% | -£188m | 2.0 |
SAFE YLD | Staffline Group plc | AIM:STAF | £86m | 321p | 3 | 8.3% | 0.2 | 0.1 | 25% | 0.3% | 9.3% | - | -54% | -£37m | 0.9 |
SAFE YLD | Sirius Real Estate Limited | LSE:SRE | £659m | 65p | 18 | 4.5% | - | 13 | 16% | 8.1% | 11% | -28% | 4.0% | -£288m | 6.6 |
SAFE YLD | The Character Group plc | AIM:CCT | £119m | 568p | 12 | 4.6% | 0.5 | 0.9 | 46% | 6.6% | 11% | -0.6% | 3.5% | £20m | - |
SAFE YLD | Polymetal International plc | LSE:POLY | £3.9bn | 824p | 9 | 4.6% | - | 3.8 | 26% | 9.9% | 6.1% | -0.2% | -7.4% | -£1.2bn | 2.1 |
SAFE YLD | TBC Bank Group PLC | LSE:TBCG | £912m | 1,662p | 6 | 3.4% | 0.3 | 0.0 | 22% | 15% | 9.2% | - | 13% | -£442m | - |
SAFE YLD | Carnival plc | LSE:CCL | £27bn | 3,948p | 11 | 4.0% | 0.5 | 2.4 | 13% | 7.2% | 13% | - | -9.6% | -£8.2bn | 2.0 |
SAFE YLD | Telecom Plus PLC | LSE:TEP | £1.1bn | 1,434p | 25 | 3.6% | 4.8 | 1.4 | 14% | 6.1% | 9.2% | -1.1% | 4.5% | -£17m | 0.3 |
SAFE YLD | Domino's Pizza Group plc | LSE:DOM | £1.1bn | 232p | 14 | 4.1% | 1.2 | 2.4 | 131% | 4.0% | 8.0% | -6.2% | -3.7% | -£203m | 2.0 |
SAFE YLD | Vesuvius plc | LSE:VSVS | £1.4bn | 509p | 10 | 3.9% | 1.0 | 0.9 | 13% | 3.3% | 7.5% | -1.9% | -15% | -£248m | 1.1 |
EV/SALES | Taptica International Ltd | AIM:TAP | £180m | 140p | 4 | 4.4% | 0.5 | 0.6 | 23% | -16% | 6.8% | -14% | -23% | £43m | - |
EV/SALES | Superdry Plc | LSE:SDRY | £399m | 487p | 10 | 6.4% | 2.8 | 0.4 | 16% | -46% | 0.8% | -13% | -6.5% | £19m | - |
EV/SALES | Redrow plc | LSE:RDW | £1.9bn | 550p | 6 | 5.5% | 0.3 | 0.9 | 22% | 2.9% | 4.0% | -2.1% | -11% | £101m | - |
EV/SALES | Pets at Home Group Plc | LSE:PETS | £878m | 176p | 13 | 4.3% | - | 1.0 | 3.4% | -2.1% | 2.0% | 0.1% | 24% | -£119m | 1.3 |
EV/SALES | William Hill plc | LSE:WMH | £1.2bn | 133p | 14 | 9.0% | - | 0.8 | - | -52% | 32% | -18% | -28% | -£209m | 0.8 |
EV/SALES | Maintel Holdings Plc | AIM:MAI | £69m | 485p | 6 | 7.1% | 4.3 | 0.7 | 8.8% | 18% | 5.7% | -0.9% | -7.0% | -£25m | 2.2 |
EV/SALES | Flowtech Fluidpower plc | AIM:FLO | £82m | 135p | 9 | 4.5% | - | 0.9 | 6.1% | 30% | 5.9% | -2.2% | 20% | -£20m | 1.7 |
EV/SALES | Sportech PLC | LSE:SPO | £52m | 28p | 23 | - | - | 0.5 | - | 304% | -11% | -20% | -21% | £18m | - |
EV/SALES | Charles Taylor plc | LSE:CTR | £169m | 220p | 8 | 5.3% | - | 0.3 | - | 3.3% | 6.6% | 5.3% | 1.9% | £87m | - |
EV/SALES | Henry Boot PLC | LSE:BOOT | £329m | 248p | 9 | 3.6% | 0.5 | 0.9 | 14% | -0.2% | 2.3% | 2.1% | -4.0% | -£18m | 0.3 |
CAPE (5.4) | Arricano Real Estate PLC | AIM:ARO | £43m | 41p | - | - | 0.0 | 4.8 | 52% | - | - | - | 0.0% | -£78m | 4.7 |
CAPE (5.4) | Caledonia Mining Corporation Plc | AIM:CMCL | £45m | 435p | - | - | - | 0.8 | 26% | -43% | 19% | -29% | -2.0% | £7m | - |
CAPE (5.5) | Kakuzi Plc | LSE:KAKU | £45m | 93p | - | - | 0.0 | 1.4 | 11% | - | - | - | 0.0% | £12m | - |
CAPE (4) | Petrofac Limited | LSE:PFC | £1.3bn | 398p | 6 | 7.5% | -1.8 | 0.4 | 6.2% | -14% | -2.6% | 4.6% | 0.3% | -£283m | 0.6 |
CAPE (3.6) | iomart Group plc | AIM:IOM | £379m | 349p | 18 | 2.8% | 2.9 | 4.1 | 12% | 6.0% | 7.9% | -0.9% | -5.9% | -£33m | 0.8 |
CAPE (7.6) | Plus500 Ltd. | LSE:PLUS | £700m | 617p | 6 | 26% | 0.1 | 0.0 | 150% | -63% | -3.6% | -24% | -20% | £247m | - |
CAPE (6.4) | KAZ Minerals PLC | LSE:KAZ | £2.5bn | 522p | 6 | 1.8% | 0.2 | 2.4 | 50% | -3.8% | 9.0% | 2.0% | -22% | -£1.6bn | 1.8 |
CAPE (5.4) | William Hill plc | LSE:WMH | £1.2bn | 133p | 14 | 9.0% | - | 0.8 | - | -52% | 32% | -18% | -28% | -£209m | 0.8 |
CAPE (7.4) | XLMedia PLC | AIM:XLM | £105m | 50p | 5 | 11% | 0.6 | 0.8 | 15% | -3.2% | 4.8% | -17% | -37% | £32m | - |
CAPE (4) | DCC plc | LSE:DCC | £6.7bn | 6,820p | 18 | 2.0% | 2.2 | 0.5 | 13% | 4.0% | 3.7% | -0.3% | 3.5% | -£230m | 0.4 |
Source: S&P CapitalIQ
All foreign FX converted to £