The Motley Fool: The Foolish Workshop, March 29, 1999

<FOOLISH WORKSHOP>

Reasonable Runaways Update

Burlington, VT (March 29, 1999) -- Today I update the Reasonable Runaways screen I've been following since the beginning of 1999. This has been a rather uninspiring model to follow. Many of the stocks so far would have been great companies to sell short! The model has roots in a model tested by James O'Shaughnessy in his book What Works on Wall Street.

I've gotten some mail pointing out that the method I use to pick the stocks differs from the original O'Shaughnessy screen. The Workshop "RR" screen goes like this: Start with all of the stocks in the ValueLine Investment Survey. Filter out companies with a market capitalization less then $150 million and narrow the remaining field to companies with a price to sales ratio of less then one. Finally, rank the remaining stocks by 26-week total return. I track the top twenty companies.

O'Shaughnessy used 12-month relative strength for his model, which produces a very different list of companies. I used the 6-month RS because that is the common measure for Foolish Workshop screens. A UCLA study indicated that it produced superior backtested returns when compared to the pure 12-month RS screen. That's the main thing that causes different companies to be selected, I believe, but O'Shaughnessy's model also differed in that it selected 25 companies instead of 20 and he used a sliding market capitalization cutoff through the period of the backtest. Since his testing ended a few years ago, the new market cap cutoff would now be something higher than $150 million.

As I mentioned above, the Workshop Reasonable Runaways haven't been impressing anyone. With the exception of a few standouts, the portfolio has been really bleeding. Here are the returns through March 26, 1999:

Micro Warehouse<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MWHS)") else Response.Write("(Nasdaq: MWHS)") end if %>      -55.64%
Read-Rite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %>           -56.87%
Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %>            62.53%
Owens & Minor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMI)") else Response.Write("(NYSE: OMI)") end if %>          -37.70%
IBP Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBP)") else Response.Write("(NYSE: IBP)") end if %>               -31.33%
Amer. Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %>            -9.64%
TRICON Global Rest. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: YUM)") else Response.Write("(NYSE: YUM)") end if %>     35.54%
SCI Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCI)") else Response.Write("(NYSE: SCI)") end if %>            -47.62%
Genovese Drug 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GDXA)") else Response.Write("(AMEX: GDXA)") end if %>     -14.47%
Bindley Western <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDY)") else Response.Write("(NYSE: BDY)") end if %>         -9.81%
Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>      -18.78%
Eagle Hardware <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EAGL)") else Response.Write("(Nasdaq: EAGL)") end if %>       24.62%
FDX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %>                6.17%
Bergen Brunswig <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBC)") else Response.Write("(NYSE: BBC)") end if %>         -39.43%
Kroger Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KR)") else Response.Write("(NYSE: KR)") end if %>                 3.10%
Fred Meyer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMY)") else Response.Write("(NYSE: FMY)") end if %>                1.45%
Scholastic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCHL)") else Response.Write("(Nasdaq: SCHL)") end if %>      -7.23%
Ruby Tuesday <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RI)") else Response.Write("(NYSE: RI)") end if %>             -18.82%
Union Camp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCC)") else Response.Write("(NYSE: UCC)") end if %>                1.21%
Park Electrochemical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKE)") else Response.Write("(NYSE: PKE)") end if %>    -13.32%

                            Top 5         -23.80%
                            Top 10        -14.54%
                            Top 15        -11.31%
                            All Twenty     10.32%

Since the final rank of the screen is recent performance, and the stocks from three months ago have been tanking, the new list is quite different from the screen produced at the beginning of the year. Here are the top twenty U.S. companies making the screen as of last week's Value Line publication, listed in order of 26-week total return rank:

Station Casinos  <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STN)") else Response.Write("(NYSE: STN)") end if %>     142.05%
VLSI Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %>      130.15%
Nine West Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NIN)") else Response.Write("(NYSE: NIN)") end if %>         128.85%
Safeguard Scientifics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFE)") else Response.Write("(NYSE: SFE)") end if %>   113.68%
Circuit City Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CC)") else Response.Write("(NYSE:CC)") end if %>        107.54%
Park Electrochemical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKE)") else Response.Write("(NYSE: PKE)") end if %>     92.26%
FDX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %>                87.13%
Aeroquip-Vickers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANV)") else Response.Write("(NYSE: ANV)") end if %>         84.53%
Lands' End <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LE)") else Response.Write("(NYSE: LE)") end if %>                78.72%
Amer. Freightways <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFWY)") else Response.Write("(Nasdaq: AFWY)") end if %>     74.63%
Dayton Hudson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>            71.49%
Georgia-Pacific Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %>     71.35%
Costco Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COST)") else Response.Write("(Nasdaq: COST)") end if %>           63.72%
USFreightways <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USFC)") else Response.Write("(Nasdaq: USFC)") end if %>         62.85%
NCR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NCR)") else Response.Write("(NYSE: NCR)") end if %>                62.15%
IKON Office Solution <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IKN)") else Response.Write("(NYSE: IKN)") end if %>     59.46%
Consol. Freightways <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CFWY)") else Response.Write("(Nasdaq: CFWY)") end if %>   58.82%
Navistar Int'l <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAV)") else Response.Write("(NYSE: NAV)") end if %>           57.71%
Office Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %>             57.14%
Smith Int'l Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SII)") else Response.Write("(NYSE: SII)") end if %>         51.02%

The Workshop version of the screen is not backtested, so I think it's best used as an educational or research tool. Have a great week!

New Rankings | Workshop Returns