Value Stock Screen Performance YTD Part 2

This is a continuation of the first post on the performances of the value stock screens.

Value Stock Screen Performances 2010 YTD

CROIC Screen

I created this screen to identify potential turnarounds or companies that have already changed the direction of  the company.

A company that is able create positive returns from invested capital is a good find. But a company able to create positive, increasing cash returns from invested capital is a great find.

CROIC stands for Cash Return on Invested Capital and for those new to the concept, F Wall Street has great explanations and examples of this metric.

In short, below is the formula for CROIC.

CROIC = FCF/Invested Capital

Invested Capital = Total Equity + Total Liabilities – Current Liabilities  – Excess Cash

Excess Cash = Total Cash – MAX(0,Current Liabilities-Current Assets)

With a return of +5% YTD, this screen is meeting my expectations of screening for great opportunities.

Best 5 Performers

  • MIND C.T.I. (MNDO) : +104%
  • MTR Gaming Group (MNTG) : 72%
  • X-Rite (XRIT) : 68%
  • Key Tronic Corporation (KTCC) : 35%
  • EasyLink Services International (ESIC) : 32%

Worst 5 Performers

  • Kindred Healthcare (KND) : -29%
  • NovaMed (NOVA) : -29%
  • Apogee Enterprises (APOG) : -25%
  • Spartan Motors (SPAR) : -21%
  • Cross Country Healthcare (CCRN) : -16%

Altman Z Screen

The Altman Z score is to predict companies that are likely to go bankrupt within the next year or so, selecting a group of companies where the Altman Z score is above 3 should gather a list of fundamentally strong companies.

Z = 1.2*X1 + 1.4*X2 + 3.3*X3 + 0.6*X4 + 1.0*X5

When Z is 3.0 or more, the firm is most likely safe based on the financial data. However, be careful to double check as fraud, economic downturns and other factors could cause unexpected reversals.

When Z is 2.7 to 3.0, the company is probably safe from bankruptcy, but this is in the grey area and caution should be taken.

When Z is 1.8 to 2.7, the company is likely to be bankrupt within 2 years. This is the lower portion of the grey area and a dramatic turnaround of the company is needed.

When Z is below 1.8, the company is highly likely to be bankrupt. If a company is generating lower than 1.8, serious studies must be performed to ensure the company can survive.

Best 5 Performers

  • Dialysis Corporation of Ameri* (DCAI) : 57%
  • UFP Technologies, Inc. (UFPT) : 53%
  • Dorman Products Inc. (DORM) : 51%
  • TESSCO Technologies, Inc. (TESS) : 33%
  • Dollar Tree, Inc. (DLTR) : 30%

Worst 5 Performers

  • Corinthian Colleges, Inc. (COCO) : -42%
  • Lincoln Educational Services  (LINC) : -30%
  • Big 5 Sporting Goods Corporat (BGFV) : -26%
  • Walgreen Company (WAG) : -24%
  • Tech Data Corporation (TECD) : -13%

Free Cash Flow Cow

Given that the purpose of this FCF screen is to identify cash cows, I believe it is doing a fine job despite under performing by couple percentage points. I would have expected the overall performance to be better since the listed companies have proven free cash flow with cheap valuations.

One anti thesis that I thought of was that companies, no matter how big or small, that starts to accumulate FCF is a sign that the company is not investing in growth which the market does not care for.

Best 5 Performers

  • Triumph Group (TGI) : 50%
  • Key Tronic Corporation (KTCC) : 35%
  • CIRCOR International (CIR) : 28%
  • SFN Group (SFN) : 27.%
  • Ceradyne (CRDN) : 26%

Worst 5 Performers

  • Willbros Group (WG) : -50%
  • Sterling Construction Company (STRL) : -37%
  • Apogee Enterprises (APOG) : -25%
  • La-Z-Boy (LZB) : -16%
  • Century Casinos (CNTY) : -15%

Graham’s Net Net Working Capital Screen

One thing that I’ve realized for sure is that investing is a game of adjustments. You think you have a strategy that will consistently beat the market, but situations change and the strategy is no longer as effective.

Investing is all about the company valuation, whether your purchase price will reward you for the risk you are taking, which is dictated by the market valuation.

In 2009, when the broad markets were statistically cheap, these Net Net stocks were high flyers. In a fairly to overvalued market, the same set of companies can be a killer.

However, the -17% performance is an exaggeration because many of these stocks are less than $1 and with the proper allocation, I’m sure the result could have ended up positive.

  • Forward Industries, Inc. (FORD) : 66%
  • Leadis Technology, Inc. (LDIS) : 40%
  • Heelys, Inc. (HLYS) : 25%
  • Sycamore Networks, Inc. (SCMR) : 11%
  • New Dragon Asia Corp. (NWD) : -37%
  • Tegal Corporation (TGAL) : -50%
  • China 3C Group (CHCG) : -50%
  • China Crescent Enterprises, I (CCTR) : -64%
  • NewMarket Technology, Inc. (NWMT) : -96%

Graham’s Net Current Asset Value Screen

NCAV companies do not get any prettier. With only 6 stocks that made the list at the beginning of the year, things were bound to be tough for Graham this year.

  • Parlux Fragrances (PARL) : 6.8%
  • Qiao Xing Universal Resources (XING) : -25%
  • Qiao Xing Mobile Communicatio (QXM) : -29%
  • InfoSonics Corporation (IFON) : -41%
  • Tegal Corporation (TGAL) : -50%
  • Orsus Xelent Technologies (ORS) : -61%



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