Monday, June 01, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (June 1, 1998) -- For fans of Jim O'Shaughnessy's Reasonable Runaways strategy, outlined in his book How to Retire Rich, today I'll feature the most recent rankings using Value Line's universe of some 1,700 stocks. You can screen from much bigger databases at several sites on the web (www.marketguide.com, www.askresearch.com, investor.msn.com, and others).

If you recall, this basic value strategy starts with a market capitalization requirement of $150 million. This is simply to weed out stocks deemed so small that they're typically difficult to trade.

Beyond that, the requirement is a Price/Sales Ratio of less than 1.0. The theory here is that you want to pay less than a dollar a share for each dollar of company revenue per share.

Then finally, to get the stocks meeting this value criterion which are also showing the best relative strength, I've sorted them by their past six month's returns. (If I recall, Jim uses the past year's returns, but for a one-year holding period, a six-month test works slightly better, according to a study done in the early '90s at UCLA.)

The top ten stocks for this screen today, then, are:

Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %>
Station Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STN)") else Response.Write("(NYSE: STN)") end if %>
Lukens <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUC)") else Response.Write("(NYSE: LUC)") end if %>
JB Hunt <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBHT)") else Response.Write("(Nasdaq: JBHT)") end if %>
LADD Furniture <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LADF)") else Response.Write("(Nasdaq: LADF)") end if %>
Pillowtex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTX)") else Response.Write("(NYSE: PTX)") end if %>
Unisys <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UIS)") else Response.Write("(NYSE: UIS)") end if %>
Chrysler <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %>
Handleman <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HDL)") else Response.Write("(NYSE: HDL)") end if %>
Haverty Furniture <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HAVT)") else Response.Write("(Nasdaq: HAVT)") end if %>

Several weeks ago I posted a similar list, and if you follow our message boards, a number of readers have been posting periodic updates for the original group. As the group gets a little older, I'll periodically report on its progress here. As you can guess, in recent weeks it's been a choppy start for any new portfolio.

It's also been a somewhat choppy first five months for the version of this screen we're following in the workshop for 1998. The difference in our screen is that we begin with the 100 top-ranked stocks from Value Line, then we filter out all but the stocks with a Price/Sales Ratio of less than 1.5 and positive earnings growth over the past year. The remaining stocks were sorted by past six-month returns and the top ten were selected on December 31.

The group of ten is staying roughly two percentage points ahead of the Standard & Poor's 500 Index, but trails the relative strength-based screens significantly. While holdings only one loser, CTS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTS)") else Response.Write("(NYSE: CTS)") end if %>, which is essentially even, it holds a number of stocks which have cooled off after enormous runs. Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %>, Airborne Freight <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABF)") else Response.Write("(NYSE: ABF)") end if %>, and Standard Pacific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SPC)") else Response.Write("(NYSE: SPC)") end if %> all sport modest returns now, but had been up strongly a few months ago. Nevertheless, two strong stocks are buoying the portfolio. Proffitt's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFT)") else Response.Write("(NYSE: PFT)") end if %> and Newport Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEWP)") else Response.Write("(Nasdaq: NEWP)") end if %> have recorded 34% and 53% year-to-date gains respectively.

Stay tuned for more updates as the year progresses. Fool on!

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

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