Revisiting an Old Stock Screen

 | May 25, 2012 | 2:30 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

lanc

,

crr

,

hi

,

wti

,

rgr

,

wtr

,

mgrc

I do a fair amount of screening, both in order to generate ideas and, more specifically, as a way to identify companies with common attributes that might outperform as a group, or an index. It's a scattergun approach, and it's appropriate to review results from time to time in order to gauge what's working and what isn't. The results are not always what you might expect. Exactly one year ago, I featured one such technique that combined solid profit margins and growing dividends -- a potentially compelling double-barreled approach in the hunt for smaller names that might outperform.

Here are the specific criteria:

• Market capitalization between $100 million and $5 billion

• Net profit margin of at least 8% for the trailing 12 months and for the latest fiscal year

• Dividend yield greater than 1%

• At least four consecutive years of increasing dividends

• Payout ratio less than 50%

• Price earnings ratio of less than 20

• No financials

Last year's search yielded just 10 names and, on a total return basis over the past year, that group declined just under 1%. Frankly, that's disappointing -- and, while it's certainly a better performance than the Russell 2000 (down 6.6%), and S&P Small Cap Index (down 1.9%) over the same period, that's of little consolation. However, I still believe that there's merit to this approach, especially over the longer term, and I'm not yet ready to throw this one away. I'll continue to track the original group of 10 names, but also wanted to see which names would make the cut now if I used these same criteria.

This year's list is even shorter: I've come up with just seven names, and just one leftover from last year, Lancaster Colony (LANC). It's a name that I've owned in the past, and one that has quietly put up an impressive run of 49 consecutive years of dividend increases.

The others are fracking-equipment name Carbo Ceramics (CRR), casket maker Hillenbrand (HI), oil-and-gas producer W&T Offshore (WTI), gun maker Sturm, Ruger (RGR), water utility American States (WTR) and business rental name McGrath RentCorp (MGRC). That's quite a diverse list of names.

In terms of portfolio statistics, together these names have an average market cap of about $1.1 billion, a price-to-earnings ratio of 13x, trailing 12-month net margin of 13.5%, payout ratio below 32% and yield of about 2.6%.

Stay tuned.

Columnist Conversations

Using this year's estimate to make a P/E is pretty standard. Basing a multiple on 2015's projected EPS is not ...
YHOO is trading $40.81, down 3.0% with IV30™ down 16.1%. Alibaba is trading at $92.41 on the first day ...
This chart is in reference to today's article on VIPS. This is a new pullback to consider if it retriggers. ...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.