Pimp Your Portfolio
"The person that turns over the most rocks wins the game."
That's Peter Lynch on investing. What he's basically saying is that in order to find the best investment ideas, you need to reject a lot of mediocre investment ideas.
Unfortunately, it's a harrowing task to start poring over the SEC filings of the more than 7,500 companies that trade daily on the major U.S. markets. This is why stock screens have become such a popular investment tool. Using screens, you can let a computer reject the ideas that don't quite fit your criteria -- leaving you with a more manageable number.
Here's one effective CAPS screen you can add to your arsenal:
Screen: CAPS Small Cap Value
Rationale: Data from Fama and French shows that small cap value stocks were the best-performing asset class from 1927 through 2004, returning 15.4% annually.
Methodology: To find small companies that are down substantially over the past year, I used the advanced search function to find stocks with a:
1. Star rating between 5 and 5
2. One-year return between -100% and -25%.
3. Market cap between $0 and $1.0 billion.
1. Aldila (Nasdaq: ALDA, Rated: 80.84). This maker of graphite golf shafts used to be a great growth story, with revenue up 45% in 2005. Recently, growth has slowed and the stock has been punished. Nevertheless, the products are good, management is long-tenured, and margins are holding up. Plus, it's priced at just 8.5x earnings.
2. Frozen Food Express Industries (Nasdaq: FFEX, Rated: 87.25). This trucking company continues to work out some operational difficulties relating to its less than truckload model. However, the stock is priced at just 11x earnings and longtime CEO Stoney Stubbs continues to hold more than 6% of shares.
3. China Medical Technologies (Nasdaq: CMED, Rated: 91.51). This marketer of medical devices in China has seen revenue and income grow rapidly. But the stock's valuation got ahead of itself. But with $118 million in cash, no debt, and positioning in one of the world's fastest growing and most populous countries, the issue is worth a look.
All in all there were 27 names pulled up by this screen. I'd consider the three names above all good starting points for further research.