Tuesday, April 21, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (April 21, 1998) -- There's been much conversation since January about the research Jim O'Shaughnessy has presented in his last two books, What Works on Wall Street and How to Retire Rich. Jim is a proponent of using low price/sales ratios as his primary value screen, chiefly because the numbers are less easy to manipulate through the completely legal accounting methods employed in corporate America than earnings numbers, the traditional pillar of value ratios like the price/earnings ratio and the like. The price per share of the stock and the sales per share for the company are readily measurable.

In Jim's most recent book, the model he proposes is called Reasonable Runaways and includes a market capitalization minimum requirement of $150 million (to weed out stocks too small to be useful), a price/sales ratio of less than 1.0, and high price momentum (relative strength). Jim suggests sorting all the stocks that meet his first two criteria by their 52-week returns as the final screen.

Today I ran the first two screens on the most recent data from Value Line and 499 stocks turned up. Sorting them by 52-week returns, here are the current top ten meeting Jim's tests:

Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %>
Navistar Int'l <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAV)") else Response.Write("(NYSE: NAV)") end if %>
Unisys <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UIS)") else Response.Write("(NYSE: UIS)") end if %>
US Airways Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %>
Varlen Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRLN)") else Response.Write("(Nasdaq: VRLN)") end if %>
Pillowtex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTX)") else Response.Write("(NYSE: PTX)") end if %>
NACCO Inds. 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NC)") else Response.Write("(NYSE: NC)") end if %>
Michael Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIKL)") else Response.Write("(Nasdaq: MIKL)") end if %>
Lehman Brothers Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEH)") else Response.Write("(NYSE: LEH)") end if %>
Sea Containers Ltd. 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCRA)") else Response.Write("(Nasdaq: SCRA)") end if %>

My personal relative strength preference (based on some experience but primarily on research studies I've read) is a 26-week measure for a one-year holding period. Using the same list of 499 stocks and a 26-week return instead of a 52-week return as the final ordering screen, here are the top ten:

Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %>
Hunt, J.B. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBHT)") else Response.Write("(Nasdaq: JBHT)") end if %>
Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %>
Station Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STN)") else Response.Write("(NYSE: STN)") end if %>
Lukens Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUC)") else Response.Write("(NYSE: LUC)") end if %>
Fred Meyer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMY)") else Response.Write("(NYSE: FMY)") end if %>
Pillowtex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTX)") else Response.Write("(NYSE: PTX)") end if %>
Good Guys <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GGUY)") else Response.Write("(Nasdaq: GGUY)") end if %>
Office Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %>
United Stationers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USTR)") else Response.Write("(Nasdaq: USTR)") end if %>

While I don't have time to track another model variation here in the Workshop, if a reader would like to mark these groups down and follow their progress for a year, I'll be glad to relay your progress reports through my column here from time to time. Fool on!

Check out the latest file updates for the Workshop:
New Rankings | 1998 Returns | New Database

[Robert Sheard is the author of The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and soon at your local bookseller.]