Close

New Edge Stocks

by John Bajkowski

New Edge Stocks Splash image

Christina Wise of Investor’s Business Daily reveals which company traits make a story stock an attractive investment in her September 2012 AAII Journal article “The 'New' Edge: Characteristics of Winning Stocks.” These are the fundamental traits that past winning stocks possessed in bull market after bull market, decade after decade. This issue’s First Cut applies the key fundamentals highlighted in the article using AAII’s stock screening and fundamental database, Stock Investor Pro.

The starting universe of 5,564 stocks for this issue’s First Cut consisted of exchange-listed companies. The First Cut first looked for companies with positive current earnings per share that have been able to increase annual earnings at a 25% or higher rate for each of the last three years. Only 168 stocks met that stringent test. The First Cut then required that earnings per share for the most recent quarter be at least 25% higher than same quarter last year. We also looked for companies that have had an accelerating rate of quarter-over-quarter earnings growth. As a confirmation of the strength of earnings per share growth, the First Cut looked for quarter-over-quarter sales growth of at least 25%. Only 12 stocks possessed both strong historical year-over-year annual earnings growth and recent strong and accelerating quarterly growth.

To seek out companies with sustainable and improving profitability, the First Cut followed Wise’s fundamental test that firms have a return on equity of at least 17% and a net profit margin is better than the company’s average margin over the last three years. Since profit margins vary by industry, the First Cut also required that the company's profit margin be higher than the industry norm. This type of filter helps to highlight companies that have a competitive advantage over their peers.

...To continue reading this article you must be registered with AAII.

Gain exclusive access to this article and all of the member benefits and investment education AAII offers.
JOIN TODAY for just $29.
Log in
Already registered with AAII? Login to read the rest of this article.

Register for FREE
to read this article and receive access to future AAII.com articles.
  
John Bajkowski is president of AAII.


Discussion

Allen Reeves from Tennessee posted about 1 year ago:

I have a book coming out in October of this year, entitled:"THE LAST WAVE? The future of civilization, the U.S., all enterprises, and the individual for the next 40+ years!". I highly recommend it to the AAII for its insightfulness about the future of the global economies. Use its info with trepidation and careful scrutiny.
Allen B. Reeves, DoD physicist retired, on FB as
"Allen Reeves"


B Reddy from Illinois posted about 1 year ago:

I am a subscriber to " STOCK INVESTOR PRO". Is it possible for you to run this screen ever month. It will be very useful to the members.
V.B.REDDY


R Curry from California posted about 1 year ago:

John,

Please post the SIPRO screen criteria for this


Jean Henrich from Illinois posted about 1 year ago:

R Curry, The SI Pro screen criteria appears below the table. You can open it in Excel by clicking on the title above the box. -Jean from AAII


Lee Dunn from North Carolina posted about 1 year ago:

Jean Henrich:
For the SI Pro screen can you show how this screen can be used? That is, I saved this screen, but do not know how to use it. How is the information obtained and how, in a step by step example, can the investor use this screen? Thanks for your help.

Lee Dunn


Charles Rotblut from Illinois posted about 1 year ago:

Lee,

Are you asking how to set the screen up in Stock Investor Pro? Send us a note at http://www.aaii.com/contact/journal and we'll try to assist you.

-Charles


Ron from Georgia posted about 1 year ago:

Where's the bottom line, the "proof of the pudding"? i.e. performance stats. All this theory sounds good, but where are the returns?


NewJoizey from New Jersey posted about 1 year ago:

following Ron from Georgia's comment -

Running this stringent screen would seem to yield strong companies who are doing well now, and historically are ramping their way up in their industries -

But does this necessarily correlate to a good equity investment?

Couldn't it be possible that the market already has priced in the good news about these companies?

I realize that there are no guarantees, but the presumption here is that these companies stocks are likely to increase in value shortly

- But what if any criteria in the screen serves as a supporting indicator that these companies are either undervalued or poised for growth?


Vernon Roberts from Florida posted 4 months ago:

HI Since this screen is now over 1 year old, it's easy to look at the performance of these co's for the last year. Will be interesting to see how they actually performed this last year.


Vernon Roberts from Florida posted 3 months ago:

Hi- Ron's comment peaked my curiosity so I did this "quick & dirty calculation, not sure the will post here very well, but I'll try. Used amibroker charting software, priemium data weekly EOD data. Calculated gain using weekly close (-1+End/Beg)*100). First: is weekly close from 8/17/2012 to 12/27/2013. Second: is sale from visual top on chart. Here's what I came up with:
WEEKLY WEEKLY
8/24/2012 12/27/2013
Close CLOSE Gain/Loss

ACAT 42.97 56.77 32.12%
ASPS 84.1 160.95 91.38%
CAMP 6.81 26.26 285.61%
SPSC 33.12 67.49 103.77%
CAP 20.62 23.23 12.66%
LULU 63.87 59.16 -7.37%
MELI 79.95 106.01 32.60%
ACCO 6.8 6.4 -5.88%
KORS 53.92 80.58 49.44%
RDY 29.94 41.13 37.37%

with hindsite visual timming: same buy date
WEEKLY week
CHART PEAK close gain/loss
ACAT 10/18/2013 60.74 41.35%
ASPS 12/6/2013 169.19 101.18%
CAMP 12/20/2013 28.27 315.12%
SPSC 10/18/2013 77.98 135.45%
CAP 4/12/2013 29.7 44.03%
LULU 6/7/2013 81.43 27.49%
MELI 10/18/2013 141.77 77.32%
ACCO 1/18/2013 8.89 30.74%
KORS 12/20/2013 83.88 55.56%

Would appear that Mr. Bajkowski 's stock screen worked quite well. :-)
Vernon



You need to log in as a registered AAII user before commenting.
Create an account

Log In