Join our community of smart investors

10 shares for investors of all stripes

Given the travails of value investing for more than a decade, and particularly this year, it comes as a bit of a surprise that of the six strategies followed by my Screen for All Seasons, it was the 10-stock portfolio selected by the deep value screen that really shot the lights out
10 shares for investors of all stripes

Even in these dark times for value investors, it seems the investment style isn’t solely the preserve of losers after all! Having last week catalogued the mauling taken by “value” since the start of the year, on updating my Screen for All Seasons I’ve found to my surprise that it is a deep-value strategy that has been the runaway star performer over the past 12 months. While I’m not suggesting this does anything to counter the broader challenges faced by value investors, it does illustrate that even when certain investment styles are heavily out of favour, they are not necessarily without any virtue. 

The idea behind my Screen for All Seasons, which I began to monitor just three years ago, is that it amalgamates six different screens, all of which embody a distinct approach to stockpicking. My interest in doing this (and very hopefully it is of interest to readers, too) is to see how well a broad spread of investment approaches can balance each other out while trying to produce better returns than the market. As always, though, on a practical level this screen provides many stock ideas for further research. 

The surprise winner from last year’s screens was one focused on the cyclically adjusted price/earnings (CAPE) ratio. Each screen selects 10 stocks based on the criteria set out below. The CAPE ratio compares stock prices to average earnings over the past 10 years. The idea here is that for cyclical companies investors often pay too much attention to the near-term outlook without appreciating where earnings are in the cycle. The real strength of this approach was that it highlighted two gold miners that have seen their shares soar in the past 12 months. 

The events that have led to gold’s surge were largely unpredictable, but deep value approaches often have to treat mean reversion (earnings tracking up or down to the average) as an article of faith because to buy deep value stocks usually requires piling in despite seemingly awful prospects. However, it is also of note that another value strategy, based on buying companies valued at a low multiple of sales, also managed impressive outperformance. It was perhaps more predictable that strategies based on momentum and growth (Great Expectations and Big Reliables) managed to do well. 

 

12-month performance

SCREENNAMETIDMTOT RTN (27 May 2019 - 18 May 2020)
GRT EXPAUGEANAUG37.6%
GRT EXPSOFTCATSCT28.9%
GRT EXPSANDERSON GROUP DEAD - DELIST.10/09/19SND23.6%
GRT EXPGAMMA COMMUNICATIONSGAMA7.7%
GRT EXPROBINSONRBN-4.6%
GRT EXPJD SPORTS FASHIONJD.-14.8%
GRT EXPWATER INTELLIGENCEWATR-21.6%
GRT EXPDEWHURSTDWHT-26.9%
GRT EXPGREGGSGRG-28.9%
GRT EXPAB DYNAMICSABDP-39.2%
AVERAGE---3.8%
MKT---14.7%
BIG RELBOOHOO GROUPBOO53.6%
BIG RELHALMAHLMA23.2%
BIG RELBREEDON GROUPBREE8.9%
BIG RELMARSHALLSMSLH-6.2%
BIG RELHOMESERVEHSV-7.6%
BIG RELMONEYSUPERMARKET COM GP.MONY-8.8%
BIG RELDCCDCC-13.6%
BIG RELJD SPORTS FASHIONJD.-14.8%
BIG RELCOMPASS GROUPCPG-35.6%
BIG RELCARNIVALCCL-77.8%
AVERAGE---7.9%
MKT---14.7%
NEFFPRIMARY HEALTH PROPS.PHP20.8%
NEFFELECTROCOMP.ECM-6.0%
NEFFMARSHALLSMSLH-6.2%
NEFFUNILEVER (UK)ULVR-11.7%
NEFFMJ GLEESONGLE-18.7%
NEFFMACFARLANE GROUPMACF-21.6%
NEFFPARAGON BANKING GROUPPAG-23.7%
NEFFGRAFTON GROUP UTS.GFTU-26.0%
NEFFPAGEGROUPPAGE-29.9%
NEFFROBERT WALTERSRWA-35.4%
AVERAGE---15.8%
MKT---14.7%
SAFE YLDPOLYMETAL INTERNATIONALPOLY108%
SAFE YLDDOMINO'S PIZZA GROUPDOM56.3%
SAFE YLDSIRIUS REAL ESTATESRE5.5%
SAFE YLDTELECOM PLUSTEP-1.5%
SAFE YLDVPVP.-1.6%
SAFE YLDVESUVIUSVSVS-30.6%
SAFE YLDCHARACTER GROUPCCT-47.6%
SAFE YLDTBC BANK GROUPTBCG-52.9%
SAFE YLDCARNIVALCCL-77.8%
SAFE YLDSTAFFLINE GROUPSTAF-91.0%
AVERAGE---13.3%
MKT---14.7%
EV/SALESSPORTECHSPO72.9%
EV/SALESCHARLES TAYLORCTR55.1%
EV/SALESPETS AT HOME GROUPPETS42.2%
EV/SALESTREMOR INTERNATIONALTRMR-8.2%
EV/SALESBOOT (HENRY)BOOT-9.2%
EV/SALESWILLIAM HILLWMH-18.0%
EV/SALESREDROWRDW-19.1%
EV/SALESFLOWTECH FLUIDPOWERFLO-45.4%
EV/SALESMAINTEL HOLDINGSMAI-63.2%
EV/SALESSUPERDRYSDRY-69.5%
AVERAGE---6.2%
MKT---14.7%
CAPECALEDONIA MINING (LON)CMCL153%
CAPEPLUS500PLUS120%
CAPEKAKUZI (LON)KAKU19.8%
CAPEIOMART GROUPIOM-2.1%
CAPEDCCDCC-13.6%
CAPEWILLIAM HILLWMH-18.0%
CAPEKAZ MINERALSKAZ-22.0%
CAPEARRICANO RLST.ARO-42.8%
CAPEXLMEDIAXLM-47.8%
CAPEPETROFACPFC-56.8%
AVERAGE--9.0%
MKT---14.7%
FTSE ALL SHARE---15.7%
FTSE AIM ALL-SHARE---13.6%
FTSE All Share/Aim---14.7%
Screen For All Seasons---6.4%

Source: Thomson Datastream

While performance in absolute terms from the screen was unsurprisingly poor given what has been going on in the market, in relative terms the 8 per cent outperformance was good. This follows a disappointing outing in this screen’s first year (3 per cent underperformance) and performance in line with the market last year. The cumulative total return from the screen now stands at a negative 6.2 per cent compared with negative 11.7 per cent from the market – taken to be a 50:50 FTSE All-Share/Aim split. While these screens are meant to provide ideas for further research rather than off-the-shelf portfolios, if I factor in an annual 1.5 per cent annual charge to reflect notional dealing costs the negative return widens to 10.3 per cent.

Source: Thomson Datastream

 

All the screen results are presented in the tables below, along with fundamental data. The criteria used to select stocks is weakened when not enough positive results come back by allowing certain tests to be failed. In order to get a 10-stock selection, an additional filter is used by each screen to produce a ranking from which the top 10 are chosen.

 

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.

 

Download documents (.xlsx )
SCREENNameTIDMMkt CapPFwd NTM PEDYEV/SalesNeff PEGFY EPS gr+1FY EPS gr+23-mth Momentum3-mth Fwd EPS chgNet Cash/Debt(-)Tests failed
GRT EXPPan African Resources PLCAIM:PAF£312m16p50.6%2.10.2147.8%18.2%28.8%-£84mnone
GRT EXPGamesys Group plcLSE:GYS£901m829p7-3.3-15.8%12.2%8.4%-0.6%£454mnone
GRT EXPCapital Drilling LimitedLSE:CAPD£80m59p82.0%0.8-18.6%15.0%6.4%-5.1%-£12mnone
GRT EXPGood Energy Group PLCAIM:GOOD£30m186p122.0%0.62.825.3%17.7%2.5%7.0%£46mnone
GRT EXPPlus500 Ltd.LSE:PLUS£1,354m1,273p64.2%-1.187.1%-41.2%46.5%99.2%-£217m/Grth FY+2/
GRT EXPPolymetal International plcLSE:POLY£7,950m1,685p123.0%5.4-38.9%1.3%30.6%19.3%£1,136m/Grth FY+2/
GRT EXPHighland Gold Mining LimitedAIM:HGM£946m260p105.2%3.8--33.0%13.9%24.0%1.7%£189m/Grth FY+1/
GRT EXPTeam17 Group PLCAIM:TM17£706m546p39-10.8-1.7%14.8%7.9%8.7%-£40m/Grth FY+1/
GRT EXPAvon Rubber p.l.c.LSE:AVON£842m2,760p290.8%4.45.06.1%24.8%1.1%0.8%-£48m/Grth FY+1/
GRT EXPNWF Group plcAIM:NWF£94m193p103.4%0.21.417.5%-7.1%1.6%19.8%£34m/Grth FY+2/
BIG RELboohoo group plcAIM:BOO£4,378m357p60-3.42.01.3%36.7%12.2%-15.1%-£225mnone
BIG RELdotdigital Group PlcAIM:DOTD£307m103p260.7%6.41.520.2%1.7%-1.9%--£17mnone
BIG RELMacfarlane Group PLCLSE:MACF£129m82p103.0%0.70.835.6%0.4%-25.9%-4.0%£39mnone
BIG RELHalma plcLSE:HLMA£8,127m2,143p380.7%6.66.56.8%-0.6%-2.6%-6.9%£310m/Fwd EPS grth/
BIG RELFresnillo PlcLSE:FRES£5,435m738p341.6%3.71.114.5%75.0%7.2%-17.9%£360m/5y EPS Grth/
BIG RELHomeServe plcLSE:HSV£3,778m1,129p271.9%4.01.79.7%6.0%-14.1%0.2%£451m/Debt/
BIG RELCentamin plcLSE:CEY£2,039m176p165.6%3.91.25.7%100.2%29.0%43.3%-£215m/5y EPS Grth/
BIG RELDiploma PLCLSE:DPLM£1,942m1,716p29-3.56.0-13.1%13.4%-15.9%-£65m/Fwd EPS grth/
BIG RELGames Workshop Group PLCLSE:GAW£1,929m5,905p292.1%6.90.91.0%0.5%-15.2%-13.5%-£5m/Cash Conv/
BIG RELCranswick plcLSE:CWK£1,929m3,690p231.5%1.42.55.2%10.1%-4.2%0.6%£111m/5y EPS Grth/
NEFFHikma Pharmaceuticals PLCLSE:HIK£5,953m2,455p191.5%3.71.85.8%8.5%27.9%5.8%£166m/Av FY2 Fwd EPS growth > 7.5%
NEFFSylvania Platinum LimitedAIM:SLP£119m44p31.9%1.30.1172.9%-23.3%-20.7%52.0%-£25m/5yr EPS grth/
NEFFMacfarlane Group PLCLSE:MACF£129m82p103.0%0.70.835.6%0.4%-25.9%-4.0%£39m/Fwd EPS/
NEFFPan African Resources PLCAIM:PAF£312m16p50.6%2.10.2147.8%18.2%28.8%-£84m/HY EPS grth/FCF/
NEFFNWF Group plcAIM:NWF£94m193p103.4%0.21.417.5%-7.1%1.6%19.8%£34m/HY EPS grth/Av FY2 Fwd EPS growth > 7.5%
NEFFMoneysupermarket.com Group PLCLSE:MONY£1,691m315p183.7%4.41.4-4.2%13.1%-0.5%-9.1%£10m/Av FY2 Fwd EPS growth > 7.5%Fwd EPS/
NEFFGamma Communications plcAIM:GAMA£1,186m1,250p270.8%3.51.612.4%10.2%-5.3%2.5%-£41m/mid PE/5yr EPS grth/
NEFFCranswick plcLSE:CWK£1,929m3,690p231.5%1.42.55.2%10.1%-4.2%0.6%£111m/mid PE/FCF/
NEFFHomeServe plcLSE:HSV£3,778m1,129p271.9%4.01.79.7%6.0%-14.1%0.2%£451m/mid PE/5yr EPS grth/
NEFFTarget Healthcare REIT PLCLSE:THRL£413m90p147.4%13.20.426.7%8.3%-25.5%1.2%£102m/HY EPS grth/FCF/
SAFE YLDVp plcLSE:VP.£271m684p74.4%1.41.21.4%-0.4%-31.9%-6.5%£262m/EPS grth/
SAFE YLDSoftcat plcLSE:SCT£2,308m1,166p32-2.110.07.4%5.7%-3.4%-0.2%-£42m/Cash Conv/
SAFE YLDRenew Holdings plcAIM:RNWH£332m422p10-0.61.71.9%8.3%-22.1%-3.7%£16m/Cash Conv/
SAFE YLDRandall & Quilter Investment Holdings LtdAIM:RQIH£287m135p76.8%1.70.4139.1%-24.3%-19.2%--£166m/EPS grth/Cash Conv/
SAFE YLDImperial Brands PLCLSE:IMB£15,305m1,629p612.7%1.71.7-4.3%3.6%-9.7%-0.2%£11,350m/Div Cov/EPS grth/
SAFE YLDDevro plcLSE:DVO£264m158p105.7%1.6-1.9%10.0%-3.7%-2.8%£125m/Div grth/RoE/
SAFE YLDMotorpoint Group plcLSE:MOTR£179m198p93.8%0.31.016.4%10.1%-33.6%4.9%£101m/Div grth/Mkt Cap/
SAFE YLDPolymetal International plcLSE:POLY£7,950m1,685p123.0%5.4-38.9%1.3%30.6%19.3%£1,136m/Div Cov/Cash Conv/
SAFE YLDBAE Systems plcLSE:BA.£15,962m497p114.7%1.00.7-3.1%13.3%-22.1%-7.2%£2,221m/EPS grth/Beta/
SAFE YLDMacfarlane Group PLCLSE:MACF£129m82p103.0%0.70.835.6%0.4%-25.9%-4.0%£39m/Mkt Cap/Beta/
EV/SALESQuixant PlcAIM:QXT£60m90p6-0.70.826.9%5.0%-45.3%11.1%-£11mnone
EV/SALESCrest Nicholson Holdings plcLSE:CRST£608m237p10-0.5--37.6%22.2%-53.7%-34.9%-£38m/Fwd sales grth/
EV/SALESPlaytech plcLSE:PTEC£639m215p13-0.7--56.3%125.8%-35.7%-62.6%£301m/Fwd sales grth/
EV/SALESeasyJet plcLSE:EZJ£1,972m499pNM8.8%0.4----66.5%-£333m/Fwd sales grth/
EV/SALESPhoto-Me International plcLSE:PHTM£166m44p5-0.71.7-2.7%5.0%-49.2%-9.4%-£8m/Sales grth/
EV/SALESRedrow plcLSE:RDW£1,514m441p6-0.72.2-23.7%-0.4%-46.8%-25.9%-£14m/Fwd sales grth/
EV/SALESBellway p.l.c.LSE:BWY£2,987m2,423p8-0.910.8-33.9%3.2%-42.7%--£5m/Fwd sales grth/
EV/SALESTaylor Wimpey plcLSE:TW.£4,596m140p10-0.94.9-29.9%15.3%-39.4%-31.1%-£518m/Fwd sales grth/
EV/SALESGeorgia Healthcare Group PLCLSE:GHG£113m87p7-1.00.641.4%25.0%-32.0%-8.8%£111m/Debt/
EV/SALESTremor International LtdAIM:TRMR£171m126p3-0.5-11.0%--38.8%-1.1%-£41m/Fwd sales grth/
CAPE (1.1)Indivior PLCLSE:INDV£351m48pNM-----30.6%--£504mn/a
CAPE (1.4)Petrofac LimitedLSE:PFC£540m161p4-0.3--40.6%-20.6%-56.5%-27.0%£321mn/a
CAPE (1.5)Lookers plcLSE:LOOK£71m18p6-0.1--78.1%-383.5%-64.5%0.6%£204mn/a
CAPE (5.2)ITV plcLSE:ITV£2,798m70p8-1.1--39.2%26.9%-47.1%-35.2%£908mn/a
CAPE (3.5)Concurrent Technologies PlcAIM:CNC£71m97p172.6%3.11.5---14.5%31.8%-£10mn/a
CAPE (3.1)International Consolidated Airlines Group, S.A.LSE:IAG£3,365m169pNM-0.5----73.2%-£6,719mn/a
CAPE (5.1)Kakuzi PlcLSE:KAKU£6,684m93p--1.7---0.0%--£13mn/a
CAPE (6.8)Appreciate Group plcAIM:APP£64m34p7-0.5--8.0%-20.9%-44.1%-1.2%-£2mn/a
CAPE (2.6)Marks and Spencer Group plcLSE:MKS£1,657m85p7-0.6--37.1%-74.5%-53.0%-31.4%£4,029mn/a
CAPE (6.5)Photo-Me International plcLSE:PHTM£166m44p5-0.71.7-2.7%5.0%-49.2%-9.4%-£8mn/a

Source: S&P CapitalIQ