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| The Basics | 15 fallen stocks for a January bounce
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Rebounding ability
The final step is to pick the stocks with the best chances of bouncing back. Last year I used a combination of fundamental factors such as debt levels, along with analysts' earnings forecasts, to make that determination.
But, in retrospect, fundamentals don't mean much if you're only planning on holding a stock for a couple of months. So this year I changed my strategy to rely solely on the analyst opinions. After all, their forecasts and recommendations drive share prices in the short-term.
I start with analysts' buy/sell recommendations. MSN divides analyst recommendations into five categories: "strong buy," "moderate buy," "hold," "moderate sell," and "strong sell." I only want stocks that analysts are advising buying, so I limit the field to stocks with "buy" or "strong buy" ratings.
Screening Parameter: Mean Recommendation >= Moderate Buy
Because expected earnings growth generally drives share prices, it makes sense to limit the field to stocks with strong earnings-growth expectations. Generally, 15% forecast annual earnings growth qualifies a stock as a growth candidate.
Thus, I require at least 15% annual earnings growth for the 2006 fiscal year as well as 15% average annual earnings growth for the next five years.
Screening Parameter: EPS Growth Next Yr >= 15
Screening Parameter: EPS Growth Next 5-Yr >= 15
My January bounce screen turned up 15 candidates. They all either stumbled last year or are in out-of-favor industries. However, analysts are expecting a recovery.
This screen is only useful if run in November or December. Its purpose is to pinpoint stocks that are likely to pop in January, or in February at the latest. It doesn't assess long-term prospects.
| January snapback candidates | | Company name | Industry name | *Recent price | | America's Car-Mart (CRMT, news, msgs) | Auto Dealerships | $17.00 | | Celebrate Express (BDAY, news, msgs) | Catalog & Mail Order Houses | $14.09 | | Comstock Homebuilding (CHCI, news, msgs) | Residential Construction | $14.27 | | Digi International (DGII, news, msgs) | Networking & Communication Devices | $11.95 | | Encore Capital Group (ECPG, news, msgs) | Credit Services | $17.46 | | Levitt (LEV, news, msgs) | Property Management | $22.95 | | Ness Technologies (NSTC, news, msgs) | Information Technology Services | $10.62 | | Possis Medical (POSS, news, msgs) | Medical Appliances & Equipment | $10.02 | | Primus Guaranty (PRS, news, msgs) | Credit Services | $10.89 | | Radio Onc (ROIA, news, msgs) | Broadcasting - Radio | $10.78 | | Radware (RDWR, news, msgs) | Information Technology Services | $18.98 | | Rocky Shoes & Boots (RCKY, news, msgs) | Textile - Apparel Footwear & Accessories | $22.99 | | The Sands Regent (SNDS, news, msgs) | Resorts & Casinos | $10.05 | | StarTek (SRT, news, msgs) | Staffing & Outsourcing Services | $17.41 | | X-Rite (XRIT, news, msgs) | Photographic Equipment & Supplies | $10.60 |
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*Data as of Dec. 13, 2005.
Because I've revised the screen considerably, I don't know if it will work better or worse than last year's version. So, its best use might be to create a watch list. Then, if it produces good results, use real money next December.
At the time of publication Harry Domash did not own or control shares in any of the stocks mentioned in this article.
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