Walter in HK: some screening criteria I use:
I like p/bv and ROE and low pe. All situational.
If ROE is measure of management effectiveness, should be fairly stable (and ideally high) over time. If fluctuates a lot, I get nervous (like the a posteriori changing of bv by accounting adjustments, as you've mentioned)
For manufacturing companies, I like to compare p/bv to ROE to bv. Thus, for a company like ESL, bv=11, ROE of 16%, but p/bv only =1.09. "Fair value" might be somewhere around 1.6xbv. Potential buy. More sophisticated analysis to adjust for cost of capital. Also check for insider buys/sells.
For insurance companies: High ROE is a negative! Too competitive a business to have high ROEs usually- co. could be underpricing/mispricing its business. I'll take steady increases in book value and price below book value. Consider also debt level. This week I added to my positions in SKP and NWLIA -- both companies meeting this criteria (although there's not really enough history for SKP)
Also relative dividend yield. Dividend yield relative to its past dividend and relative to the S&P yield. More mechanical method. Owning in this way: JPM, JCP, WHR, others.
And also use some screens for historical data (when I can find it) for years of continuous earnings increases, div. increases, rev. increases, etc.
Paul |
