The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Aug. 26, 1997) -- Continuing yesterday's discussion about alternate screening methods for the Dow stocks, I ran some tests using Relative Strength (or price performance) for the Dow stocks over three different periods leading up to the beginning of 1997: three, six, and twelve months.

The results, of course, are anything but conclusive, based solely on a single year's results (and not even a complete year at that). But for the sake of further experiments, I present the findings here today. Each investor will have to decide if they're worth pursuing with further studies.

Taking the five Dow stocks with the best returns over the previous 12 months would have selected this portfolio for 1997 (returns through Friday, 8/22):

41.4% Int'l Business Machines (IBM)
12.2% Woolworth (Z) (still in the Dow in January)
21.8% United Tech (UTX)
15.9% Coca-Cola (KO)
29.9% AlliedSignal (ALD)

24.2% Total

If we limited the field to the ten high yielders, using the previous 12 months RS screen we would have selected these stocks:

41.4% DuPont (DD)
13.4% Minnesota Mining (MMM)
20.0% Texaco (TX)
24.8% Chevron (CHV)
19.8% Philip Morris (MO)

23.9% Total

Running the same screens using the performance over the previous six months, here are the groups we might have selected:

All 30 Dow stocks (best 6-month performance):
41.4% Int'l Business Machines (IBM)
45.8% American Express (AXP)
19.6% Merck (MRK)
5.3% Boeing (BA)
13.4% Minnesota Mining (MMM)

25.1% Total

High-Yield 10 stocks (best 6-month performance):

13.4% Minnesota Mining (MMM)
41.4% DuPont (DD)
20.0% Texaco (TX)
15.7% J.P. Morgan (JPM)
30.5% Exxon (XON)

24.2% Total

Running the same screens using the performance over the previous three months, here are the groups we might have selected:

All 30 Dow stocks (best 3-month performance):

19.8% Philip Morris (MO)
45.8% American Express (AXP)
41.4% Int'l Business Machines (IBM)
13.4% Minnesota Mining (MMM)
30.5% Exxon (XON)

30.2% Total

High-Yield 10 stocks (best 3-month performance):

19.8% Philip Morris (MO)
13.4% Minnesota Mining (MMM)
30.5% Exxon (XON)
18.8% General Motors (GM)
-2.0% AT&T (T)

16.1% Total

Conclusions? It's dern near impossible to make any, although it does look like giving an eye to Relative Strength makes sense with the Dow stocks. If one extends the field to ten stocks instead of five and begins with all 30 Dow stocks, the 6-month test was by far the most consistent. The top ten with a 6-month test has returned 28.4% so far. Using a 12-month test, the top ten have returned 25.9%. And using a three-month test, the top ten have been weaker, returning 21.7%.

It's only a recipe for you Foolish cooks to experiment with (but perhaps not on company yet). I'll keep you posted if I run any further tests on other periods or groups of stocks. Fool on!

Monthly Growth Screens
(Jan. 3 to present)
75.06%  Relative Strength  
33.62%  Investing for Growth  
25.99%  YPEG Potential  
22.06%  S&P 500 Index  
20.56%  EPS Plus RS  
18.69%  Low Price/Sales  
12.93%  Unemotional Growth  
10.93%  Formula 90  

Annual Value Screens
(Jan. 1 to present)
21.36%  Dogs of the Dow  
20.69%  Dow Jones Ind Avg  
18.08%  Beating the S&P  
18.00%  Dow Combo  
17.39%  Unemotional Value  
17.39%  Beating the Dow  
 9.68%  Foolish Four