Volunteer: re. screening for broken stocks
You asked:
<<Some of these really beaten down, low RS stocks are good buyout candidates. Any advice about good screening parameters to help to avoid buyout targets?>>
Right you are. It is critical to distinguish a beaten-down value stock from a beaten-down lousy company that is struggling to survive. In carrying out a mechanical screen, I would apply criteria for cash/share, cash flow, price/book, and price/sales to try to eliminate most of the value stocks.
Yes, people have done these screens. As an example, if you look early in this thread, you will find that I was reporting monthly screens of what I call my 'low RS / neg cash flow' screen. See for example
exchange2000.com
I quit doing this on a regular basis during the 1997 bull market, after having a couple of bad months when a rising tide lifted these low quality stocks terribly high.
May 19, 1998 I did the screen again, for myself, and the top six stocks that topped the list were btim, ctu, iaic, zitl. Since then, these 4 stocks have lost an average of 56%, which I suppose is a bigger drop than the market as a whole.
It seems these broken stocks are very volatile. They drop like a rock in a bad market, but bounce back fast in a raging bull market, especially one that favors small cap tech stocks.
I don't recommend shorting all the stocks produced by such a screen blindly. I think it's better to use it as the starting point for reading the SEC filings and news releases to pick out the companies that are really struggling to survive yet still have a fairly high valuation. |
