Extract from an April Smart Money article.
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Now here's a secret. I've followed several of these benchmarks over the past few weeks, and they're more alike than different. Here's what to look for. In most cases you'll see a graph with a stock's price over time and another line that tracks it pretty closely. Things get interesting when the two lines diverge. If the indicator goes down when the price goes up, there's selling pressure. If the gap is in the other direction, buyers are quietly moving in.
So where can you see this stuff? For starters, try these Web sites: ASK Research (www.askresearch.com) and IQC.com (www.iqchart.com). Using either of them, you can see graphs of price and on-balance volume, one way to get a money flow on stocks. Pay a little bit and you can do more sophisticated things -- like screening.
To find stocks for this month's table, I used a nifty ranking function that's part of Telescan's ProSearch software. I zeroed in on companies with a market value of over $2 billion. Then I looked for those in the bottom 30 percent based on six-week price performance and the top 50 percent based on accumulation/distribution over a similar period. A crude effort, perhaps, but the best I could devise to highlight divergence, or what's called positive money flow -- situations where there's buying even though prices are weak.
In one pass, I narrowed my universe from 1,000 stocks to only 40. I made further cuts by applying standard value criteria: debt/equity ratios of less than 1, estimated growth rates of greater than 15 percent and price/earnings-to-growth (PEG) ratios of under 1.5. What's left are mostly well-known companies, so I won't discuss them in detail. But the one-year and five-year returns on equity reveal a common thread: They're either enjoying a good year after a string of bad ones (Apple, Unisys) or are in what might be temporary hard times (Block, Mirage, Newbridge, Quantum). If I've juggled the numbers correctly -- and if you're willing to put a little trust in the old-time tape readers -- these stocks are all good buys. --- Contributing editor Paul Sturm can be reached by e-mail at psturm@smartmoney.com
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