The Motley Fool: The Foolish Workshop

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (January 31)

A number of readers have asked recently about the annual growth model I've written about in the past. We've recently started calling this approach Formula90, so I'll use that nickname in the future.

The approach starts with the same field of 100 top-ranked stocks from Value Line we use in the other growth screens. Those stocks with at least a 90 or better (thus the name) for both EPS and RS scores from Investor's Business Daily are ranked by Relative Strength and then the top five to ten stocks, depending on your needs, are held for one year. Since 1987, this approach has returned gains on average of 35% a year for both five- and ten-stock versions.

But 1997 has gotten off to a rocky start for Formula90. Here are the top five stocks and their year-to-date returns:

 -3.64%  AMERICAN POWER CONVERSION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:APCC)") else Response.Write("(Nasdaq:APCC)") end if %>
 18.43%  INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
-19.65%  ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
-32.44%  COACHMEN INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COA)") else Response.Write("(NYSE: COA)") end if %>
  6.12%  PEOPLESOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %>

Average Return: -6.24%

Slots numbered six through ten have done marginally better so far:

  4.02%  HERMAN MILLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MLHR)") else Response.Write("(Nasdaq: MLHR)") end if %>
  7.65%  ENSCO INT'L <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESV)") else Response.Write("(NYSE: ESV)") end if %>
-18.15%  3COM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %>
 -6.91%  CKE RESTAURANTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKR)") else Response.Write("(NYSE: CKR)") end if %>
 24.76%  McAFEE ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCAF)") else Response.Write("(Nasdaq: MCAF)") end if %>

Average Return for all ten stocks: -1.98%

As with all the other screens, one month doesn't mean very much and the stocks getting beaten about the head may yet turn out to be powerhouses. The thing to remember with this approach is that it is going to be far more volatile than the Dow Dividend Approach, which means you either have to be willing to sit through 30% drops in some stocks (like Coachmen this year), or adopt a sell-stop discipline that works for you.

But if you're looking to add a growth component to your Dow portfolio and can't justify the higher trading costs associated with monthly or quarterly updates, you might mine this particular screen for likely candidates.

Stop by and visit The Thoroughbred Stock Challenge. We've just begun February's contest, but March's is just around the corner. Jim Parrish of Granada Hills, California was the winner for January, but he's followed closely by a tight pack of ponies, all trying to run him down for the quarterly title. Jim had an impressive 23.33% return for the month, holding the following ten stocks: DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>, ADAPTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %>, GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GATE)") else Response.Write("(Nasdaq: GATE)") end if %>, MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>, WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %>, SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>, APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %>, INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>, and ORACLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %>. Just think what his return would have been with Oracle dragging it down!

Fool on!

Monthly Growth Screens
     (Jan. 3 to present)
23.68%  Relative Strength  
23.11%  YPEG Potential  
 9.08%  Low Price/Sales  
 6.31%  Investing for Growth  
 5.17%  S&P 500 Index  
-1.22%  Unemotional Growth  
-3.16%  EPS Plus RS

Annual Value Screens
     (Jan. 1 to present)
  5.55%  Dow Jones Ind Avg  
  5.41%  Dogs of the Dow  
  3.95%  Beating the S&P  
  1.56%  Dow Combo  
  0.95%  Unemotional Value  
  0.95%  Beating the Dow  
 -0.56%  Foolish Four