<FOOLISH WORKSHOP>

Reasonable Runaways      

by Jim Stevens ([email protected])

Burlington, VT (May 6, 1999) -- Today we check in on one more screen from the Workshop toolbox. This particular one was adapted from a stock selection technique Mr. James O'Shaughnessy wrote about in his book What Works on Wall Street.

Mr. O'Shaughnessy was given rare access to years of stock data kept by Standard & Poor's. He set about to find out which quantitative measures of a company were historically the best ones to use as predictors of market-beating returns in the following year -- sound familiar?

His search led him to a few different screens. One he named Reasonable Runaways. The two parameters that were the basis of the screen are price to sales ratio (a low one being preferred) and relative strength. Using a minimum market capitalization, Mr. O'Shaughnessy found that stocks sporting a low price to sales ratio and high one-year relative strength did very well in the following year over a very long backtested period.

Hoping to take advantage of the edge that O'Shaughnessy's test seemed to show for this screen, we came up with a similar screen to follow in the Workshop. We call it -- yup -- Reasonable Runaways. Regrettably, this screen has been really stinking up the joint in the recent past.

Here's an explanation of the Foolish Workshop version of Reasonable Runaways: Start with all of the stocks in the ValueLine Investment Survey. Eliminate all companies with a market capitalization less than $150 million and filter out companies with a price to sales ratio greater than one. Finally, rank the remaining stocks by 26-week total return.

Along with two other screens, Reasonable Runaways is a screen I'm following as sort of an "on the side" Workshop special for 1999. You'll find the 1999 starting point in my 01/07/99, Three Experimental Screens report. Here's how that Reasonable Runaways portfolio is doing as of the April 5, 1999 closing bell:

Micro Warehouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MWHS)") else Response.Write("(Nasdaq: MWHS)") end if %>   -51.94%
Read-Rite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %>         -59.73%
Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %>          53.77%
Owens & Minor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMI)") else Response.Write("(NYSE: OMI)") end if %>        -38.89%
IBP Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBP)") else Response.Write("(NYSE: IBP)") end if %>             -24.68%
Amer. Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %>         -12.18%
TRICON Global Rest. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: YUM)") else Response.Write("(NYSE: YUM)") end if %>   26.18%
SCI Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCI)") else Response.Write("(NYSE: SCI)") end if %>          -34.31%
Genovese Drug 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GDXA)") else Response.Write("(AMEX: GDXA)") end if %>    11.23%*
Bindley Western <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDY)") else Response.Write("(NYSE: BDY)") end if %>       20.39%
Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>     14.81%
Eagle Hardware <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EAGL)") else Response.Write("(Nasdaq: EAGL)") end if %>      4.49%**
FDX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %>             25.51%
Bergen Brunswig <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBC)") else Response.Write("(NYSE: BBC)") end if %>      -35.48%
Kroger Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KR)") else Response.Write("(NYSE: KR)") end if %>            -10.89%
Fred Meyer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMY)") else Response.Write("(NYSE: FMY)") end if %>           -14.69%
Scholastic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCHL)") else Response.Write("(Nasdaq: SCHL)") end if %>   -9.12%
Ruby Tuesday <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RI)") else Response.Write("(NYSE: RI)") end if %>           -4.63%
Union Camp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCC)") else Response.Write("(NYSE: UCC)") end if %>           -15.07%
Park Electrochemical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKE)") else Response.Write("(NYSE: PKE)") end if %> -24.29%