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Value Screen

by Kirkpatrick
book
value
momentum

Performance

SP500
Screener
1200.0%1200.0%900.0%900.0%600.0%600.0%300.0%300.0%0.0%0.0%-300.0%-300.0%199919992002200220052005200820082011201120142014201720172020202020232023
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In a Nutshell

The screen focus on relative low-valued stocks with high performing return in the last 6 months.

Stock Picks

Asset
Gross Margin (%)
Sector
PE
Net Margin (%)
1
ABC Company
ABC
N/A
N/A
N/A
N/A
2
ABC Company
ABC
N/A
N/A
N/A
N/A
3
ABC Company
ABC
N/A
N/A
N/A
N/A
#4
ABC Company
ABC
N/A
N/A
N/A
N/A
#5
ABC Company
ABC
N/A
N/A
N/A
N/A
#6
ABC Company
ABC
N/A
N/A
N/A
N/A
#7
ABC Company
ABC
N/A
N/A
N/A
N/A
#8
ABC Company
ABC
N/A
N/A
N/A
N/A
#9
ABC Company
ABC
N/A
N/A
N/A
N/A
#10
ABC Company
ABC
N/A
N/A
N/A
N/A

When to Sell

Sell Strategy

1
2
If you don't sell early, you'll be late. Your object is to make and take significant gains and not get excited, optimistic, greedy, or emotionally carried away as your stock's advance gets stronger.
Keep in mind the old saying :" Bulls make money and bears make money, but pigs get slaughtered."

All you need to know about Value Screen

Discover the Value Screen by Kirkpatrick

Despite the success of his growth model, Kirkpatrick was concerned that its performance had occurred during one of the strongest bull markets in history. To protect against the inevitable market reversal, he wanted to strengthen the system against capital losses. His belief was that relative price strength would not be effective in a market downturn and could be the source of significant capital losses. Kirkpatrick's alternative was to reduce portfolio risk by starting with a group of low-valued stocks. His reasoning was that since the low valuations were likely due to price declines, the downside risk had been reduced. Kirkpatrick arbitrarily selected only stocks in the 30th percentile or lower using relative price-to-sales percentiles.

He tested his value model from 1998 to 2007. It outperformed the growth model and the S&P 500 Index.

Kirkpatrick's Value List mimics the Growth List. However, instead of using a chart pattern stop, it uses the relative price-to-sales ratio to reduce risk.

Rule #1 Price Strength

In Beat the Market, Kirkpatrick calculates relative strength by dividing the current weekly closing price by the 26-week moving average of closing prices. We only keep the company in the top 10%.

Top 10% of Relative Price Strength

Rule #2 Reported Earnings Growth

Kirkpatrick uses a non-standard calculation for earnings growth, which compares operating income over the last four fiscal quarters to the four-quarter total of operating income one quarter earlier. His goal is to eliminate the effect of seasonality on a company's earnings.

Growth in Operating Income

Rule #3 Price and Market Cap

For the Value List, Kirkpatrick relaxed his market cap requirements to include companies with a market capitalization of $500 million or more. However, he maintained the minimum share price of $10.

Share Price > $10

Market Cap > $500 million

Rule #4 Relative Valuation

For his Value List, Kirkpatrick selects stocks with relative price-to-sales ratios in the 30th percentile or lower.

Top 30% for Relative Price/Sales

Rule #5 Sell Criteria

After buying a stock for his value list, Kirkpatrick used these rules to determine when to remove a stock from the portfolio:

  • Relative price strength percentile of 30 or less,
  • Relative reported earnings growth percentile below 50, and
  • Stocks NOT removed for extraordinarily high relative price-to-sales ratios.

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