2000 Portfolio Screen Filters 10 Stocks Based on Insider Buying, EPS Momentum
When we asked Merrill Lynch & Co.’s chief quantitative strategist, Richard Bernstein, late in 1998 about our special stock screen for 1999 (“Which Blue Chips to Bet On? Here’s What Key Stats Suggest,” Jan. 5, 1999), he was unimpressed.
“Way too complicated,” he said.
He was right: That 20-stock portfolio, selected by a mathematical formula using half a dozen factors, such as share-price appreciation and price-to-earnings ratio, was a dog. The stocks returned an average of 8% last year, versus 21% for the Standard & Poor’s 500 index.
The few big winners, such as Oracle Corp. (up 289% from the Jan. 1, 1999, close through Dec. 31) and Morgan Stanley Dean Witter & Co. (up 101%), were swamped by losers such as Safeway Inc., down 41%; Ford Motor Co., off 9%; Loews Corp., which slipped 38%; and that train wreck of an insurance stock, Progressive Corp., which regressed 57%.
So to pick a portfolio for 2000, we streamlined the process. Instead of six factors, we used just two: insider stock buying (a value-oriented indicator) and earnings-per-share momentum (a growth indicator).
The pair have worked well together in other Times screens, and like legendary football coach Bum Phillips used to say, “You gotta dance with who brung ya.”
So we asked Zacks Investment Research Inc. of Chicago for a list of the best stocks based on an equally weighted screen using the two items. For insider buying, Zacks looked at the percentage change in total stock holdings among the company’s own officers and directors who traded shares over the previous 12 weeks, excluding options-related transactions.
For EPS momentum, Zacks looked at the percentage change over the previous four weeks in analysts’ consensus estimate for the next fiscal year, which roughly corresponds with calendar 2000.
From its universe of 6,600 stocks, Zacks supplied a list of the best 50, based on data as of Friday, and we then chose 10 with good scores in both categories.
The stocks represent a variety of industries, including several old-fashioned, even (to some) boring companies: National Steel Corp.; electric utility Unicom Corp.; FirstFed Financial Corp., the holding company for First Federal Bank of California; Meritor Automotive Inc., which makes parts for heavy trucks and sport-utility vehicles; Cooper Cos., which makes contact lenses and other medical equipment; and Montana-based platinum and palladium miner Stillwater Mining Co.
Value-oriented investors--if there are any left out there--may at least find those names interesting enough to research a bit more. Most of the stocks sport price-to-earnings ratios far below the market average.
Investors with more of a tech or telecom bent might be more interested in the others on the list: Adaptive Broadband Corp., whose wireless and satellite-based systems support high-speed Internet access; telecom equipment maker Andrew Corp.; phone giant BellSouth Corp.; and FDX Corp., the freight company sometimes seen as an indirect e-commerce player.
Of course, just because insiders are buying, and earnings estimates are rising, doesn’t mean these stocks will surge any time soon.
As with any stock screen, this portfolio should be considered simply a source of ideas, and investors should always do their own research and make their own decisions.
Just ask anyone who bought Progressive in 1999.
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10 for 2000
This portfolio of 10 stocks is based on a screen that looks for two trends: rising insider stock holdings (among those who bought or sold shares in the preceding 12 weeks) and a rise in analysts’ consensus per-share estimates for 2000 over the previous four weeks. Data are as of Friday:
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12-wk% 4-wk % Con- Ticker Tues. chg. in change sensus Company symbol close holdings ’00 EPS* ’00 EPS* Adaptive Broadband ADAP $84.56 +10.4% +8.0% $1.63 Andrew ANDW 20.63 +17.1 +3.0 0.85 BellSouth BLS 44.44 +512.5 +2.7 2.44 Cooper COO 30.06 +6.8 +7.9 2.32 FDX FDX 45.63 +208.3 +1.4 2.52 FirstFed Financial FED 14.44 +100.0 +2.1 2.26 Meritor Automotive MRA 18.38 +17.1 +3.6 3.34 National Steel NS 8.50 +150.0 +2.8 2.38 Stillwater Mining SWC 30.50 +45.2 +27.2 2.62 Unicom UCM 36.25 +39.4 +2.4 4.44
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*Earnings per share for next fiscal year, in most cases roughly corresponding with calendar 2000.
Source: Zacks Investment Research
