By
Glen Bradford
Alright, first, recognize that time that you spend weeding out companies is time that you can spend doing other things, like actually analyzing them. So, for this article, I’m going to break down how I would screen the Fortune Small Business 100 in less than half an hour to make a cut throat decision on which stocks to own. Remember, we are trying to figure out what to buy by figuring out what’s not worth owning at a quick glance.
Step 1: (1 minute, eliminated 75/100)
Sort by total return to investors. This is the total return that owning the company has returned to investors. Obviously, you want to focus on the fast growing companies that have not returned money to investors, because that’s where the money is probably going to be made.
So, scroll to the bottom and pull the bottom 15 companies. For reference purposes only, I’m only going to talk and reference the companies out of these 15 that are worth further investigation, but I’ll have gone through them all. I usually go through the entire list. I eat lists for breakfast. I sort through entire OTCBB symbol directory lists in a couple days and sweep away the cream from the milk. I expect that you are less crazy about reading reports and sorting information than I am. So, this is what I would recommend for your average person that hopefully can read English and understand basic math. There is no need to derive your own excel derivative equations to tabulate the geometric forecasted slope of a logarithmic model. In fact, there isn’t much value-add from doing that anyway.
Step 2: (10 minutes, eliminated 95/100)
Copy and paste the names of the bottom 15 into google finance and find the ticker. Drag the scrolling window back a couple years. Make sure that the current stock price is significantly (at least 200% upside in a crisis environment like this) lower than the latest stock price high. This isn’t always in the last 52-weeks. If it isn’t get rid of it. Also, make sure that the EPS number is a positive number. Make sure that all the net income figures are positive while you’re at it for the last quarter, the last year, and the year before. Make sure that the latest fully reported year has higher revenues than it did the year before. Make sure that the company isn’t a pink sheet. NASDAQ, NYSE, and AMEX are what you are looking for. Save the tickers that beat this test into a new notepad session.
Step 3: (5 minutes, eliminated 98/100)
Go to finance.yahoo.com and keep the ones where the forward P/E ratio is less than the TTM P/E ratio. Keep the ones where the forward P/E ratio is less than 8. Make sure the ttm operating cash flow is positive. And you’re done.
The two stocks that made it this far are CTI Industries (CTIB) and KMG Chemicals (KMGB), let’s see what there is to say about them.
And, I hate both of them. Screw it, Buy EBIX instead, also part of the list. Odds are they both outperform the stock market though. This is totally not worth publication anywhere but my blog.