Value Line's in-depth historical financial data on over 1,700 stocks makes it the best service available. In addition, over the years, I have uncovered some very successful stock screens and portfolio schemes using the data in ways I doubt the publishers ever really intended.
One of the most successful stock screens I have ever developed uses two simple filters for names that:
- boast the two highest Value Line rankings; and
- trade for less than $10 a share.
This screen has almost doubled the market's rate of return for more than two decades now and has earned 5x the market return over the lost decade of 2001 to 2011. You need a strong stomach, as the volatility is high, but if meet that prerequisite, this portfolio of undiscovered growth stocks and potential turnarounds is not bad approach for long-term aggressive investors.
I haven't run this screen in a while, and I was a little surprised to see that it only turned up nine stocks. This is the fewest number of low-priced, high-ranked stocks that I can recall. The average return is about 26 stocks. This raises a huge red flag for me, and we have noticed a certain amount of correlation between the number of stocks in the screen and market direction over the years.
The screen always produces 1-800-Flowers.com (FLWS). The stock has not traded in double digits since 2008, but there are some signs of a turnaround.
Earnings have improved somewhat this year. In 2011, the company grew revenue by almost 7% and showed healthy gains in cash flow, and earnings for the year better than doubled.
The future looks OK for the company, as flowers, gourmet food and gifts are also poised for solid revenue and earnings growth. The concern here would be that this is a very competitive business that depends on continued consumer sentiment improvement, and flowers are not exactly a necessity.
One of my favorite turnaround banks from last year, Regions Financial (RF), is still on the list. A lot has gone right for Regions over the past year, and the stock has just about doubled since I suggested it as a turnaround candidate last fall.
Things continue to go right for the bank, as it has used the money from the sale of the Morgan Keegan investment operations along with the proceeds of an equity offering to pay back TARP financing. The credit quality of the loan portfolio continues to improve, albeit slowly.
Net interest margins remain a problem for the bank, but the rollover of some higher-rate deposits next year should help a little in the low-rate environment. The future should hold more improvement for the Southeast-based bank, but I will caution that the shares now trade at a slight premium to tangible book value.
The rest of the list includes AMN Healthcare Services (AHS) Cincinnati Bell (CBB), Carriage Services (CSV), CapitalSource (CSE), Belo (BLC), Hot Topic (HOTT) and LSI Corporation (LSI) -- all of which have strong potential for continued fundamental improvement but also have been moving up with the broader market.
This screen produces a solid portfolio of stocks capable of high returns, but right now, there are too few of them (and most of them are close to double-digit pricing). I would watch most of these stocks carefully for a better entry point in a market selloff to improve your chances of success.
Tomorrow, I will look at the turnaround and long shot screen from Value Line data that has produced some spectacular winners over the years.