The Essential of Stock Screening: Government Linked Companies II

In reference to the previous Stock Screening: Government Linked Companies, I would like to share the screen of my back tested on Malaysia GLCs. I use one of the online local newspapers market watch function in which publicly available. Just a small free registration required though.

I bought each stock 10,000 unit on Sept 10, 2012 and Jan 13, 2013. The stocks are Axiata , +CIMB Malaysia, +Maybank, PCHEM, PETGAS, Sime Darby and +Tenaga Nasional Berhad 

As you can see, until April 12, 2013 at 6.45pm, Axiata gains 10.9%, CIMB 4.2%, Maybank gains handsomely at 17.1% and Petronas Chemical and Petronas Gas sluggish around 4.4% and 2.6% respectively. 

I should cut my losses if Sime Darby continues in red while +Tenaga Nasional Berhad settled at 14.5% gain. 

Although by average, the total gain is about RM38,800 or 6.2% only, at least by conducting this exercise and back testing, you could easily establish favorable GLC stocks. These stocks could easily outperform Bursa Malaysia, if they are also top 30 of Bursa based on the market caps. 

Perhaps, just within 6 months, my portfolio matched with the usual dividend rate given out by the government or institutional funds. If the scenario remains predictable and consistent, on annual basis, don't you think you might be able to get a double digit rate? 

Nevertheless, given my testing period since September last year, you have to take into considerations the consolidation period during early and end of the year. Including the budget announcement, if it is significant.   

Just give a try!

The Importance of Stock Screening

Stock screening is a very important exercise for investor to filter the market and zero in on the companies that meet their criteria. Screening tools that widely available on the net would allow you to quickly and easily search for shares showing high growth, yield or daily price movement.

Stock screening tool could be used for your technical and fundamental analysis. Personally, I prefer to use fundamental ratios before narrow down based on the technical indicators. Financial websites such as Financial Times or finviz.com provide maps or heat maps indicating the favourable and unfavourable industry of the day.  

Nonetheless, the screening tool would filter the fundamental data including:

i.   company basics information such as closing price and market capital.

ii.  share performances such as price rise or fall in a day, a week, a month or a year.

iii. growth ratios such as Earning per Share (EPS) growth and dividend growth

iv. incomes ratios such as dividend yield and dividend cover

v.  valuation ratios such as price-to-book ratio, price per earning, highest price per earning in a year

vi.  financial strength such as net gearing and net asset value per share

vii. management effectiveness such as return on assets and return on capital employed

viii.Profit & Loss account such as operating costs and revenue

ix.  balance sheet such as total current assets and net assets

x.   broker or analyst recommendations on whether sell, buy or hold

xi.  director deals

The screening tool could also be set to filter technical information such as percentage movement of price within 52 week low or high and percentage of price break above or below moving average lines.

With the comprehensive market data, the screening and analysis are more possible to be carried online. Stock exchange like NASDAQ has a comprehensive section for investors to use the stock screener.  In fact, it already has predefined stock screener that could help you to find the stocks that meet your criteria.

Financial Times also has a global equity screener that you could try out at http://markets.ft.com/screener/predefinedScreens.asp It has more than 50 customisable screening criteria. Under FT predefined screens, you could try screening criteria predefined by the world best investors including Warren Buffet and Ben Graham.

Before using the screening tool, you should have an idea on what criteria to search for. The fundamental and technical variables make the possibilities nearly endless and you might end up betting on the wrong stock. In the same time, it is crucial to ascertain that your search is using the updated databases. Otherwise, your search would be meaningless. Perhaps for a start, you could adopt some predefined stock criteria. 

The bottom line is the screening tool offer purely quantitative considerations. Some ratios are not accurately filter stock from specific industry. Technology stocks may high a slightly higher P/E because a low P/E ratio does not necessarily mean a stock is cheap. Similarly, a high P/E ratio does not mean a stock is expensive. Auto industry or retail industry for instance has a low P/E but it does not mean that those retail stocks should not been considered.

The Essential of New Year Trading Strategy 2013.

In my opinion, this is a must-have trading strategy for 2013 for medium-term traders or investors. This strategy is more or less emulate the big cap list strategy with a little twist. It would consume less of your time monitoring your portfolio on daily basis but could offer a fairly good return with a minimal risk.

I have been back-testing this strategy at The Star business 'My Portfolio' section. 

Big Market Capital 
Screen for listed companies on the Main Board that have more than RM 10 billion market capital. There are considered as blue chips companies with strong fundamental business and revenue streams. The FTSE Bursa Malaysia KLCI Index comprises of the largest 30 companies by full market capitalisation on Bursa Malaysia's Main Board. You may see stocks like PPB Group Berhad, YTL Power International, Axiata Group Berhad, Felda Global Ventures and Petronas Gas Berhad. 

Government Linked Companies
From the largest 30 companies, identify companies that have government linked companies (GLC) status. GLC companies are controlled by Malaysian government via Federal Government-Linked Investment Companies. In addition, Malaysian government also has a power to appoint members of board of directors and senior management positions. 

From that 30 companies, GLC are including Malayan Banking Berhad, Sime Darby Berhad, CIMB Group Holdings Berhad, Petronas Chemical Berhad and Axiata Group Berhad. 

Dividend Yield
Again, a simple calculation of dividend yield would mark an ability of a company to pay out dividend each year. It may pay on quarterly or annually basis. However, the bottom line is it represents the return on investment for owning a stock. So hence, you should be interested to look for stocks that have high dividend yield. 

On Bloomberg, the easiest indicator would be 'Dividend Indicated Gross Yield'. The yield range that we are looking for is between 2% - 7%.  

Lowest Price
The last filter is to select probably five stocks with the lowest price. With no preference, now you have a top five big market caps government linked companies with a good dividend payout record at a bargain price. 

At the beginning of the year, buy equal amount of each stock. The aim is to hold these stocks before liquidating them in the final quarter of the year. Check your position and stock performance perhaps once a month or a quarter. If the performance of the stocks went south for more than 5%, you should be selling it to cut your loss. However, it also depends on your risk tolerance. 

Happy New Year and Happy Trading!

Stock Screening : Dow Jones 30

In general, stock screening is associated with fundamental and ratio analysis. Literally, you filter stocks with predefined key fields that suit your trading styles; growth, valued, conservative or aggressive. Personally, I always use fundamental data such as dividend yield, Beta, operating margin, Return on Capital Employed (ROCE), ratios derived from Balance Sheet and Profit/Loss Account as the first stage of my stock research.

With that information, you can set up screening strategies using specific fundamental criteria to extract suitable stocks to trade. Many practitioners have developed predefined and back tested screening strategies. Some of them may be complex to general public and some of them are as simple as ABC.

I think you may hear about screening the big market cap stocks, hold and sell them after a year. Perhaps, I could put extra details on this method. You may want to apply to all stock exchanges though. However, I believe this method is useful for medium-term investors who do not want to spend too much time on research.

Big Cap list

Get a list of big market cap of Dow Jones which is usually known as Dow Jones 30. Or get a similar list from S&P, FTSE, CAC40, DAX, Nikkei, Hong Kong or even Johannesburg Stock Exchange. Big market cap stocks usually are prominent blue chip stocks with strong fundamental business and financial models.

Dividend Yield

A simple calculation of dividend yield would mark an ability of a company to pay out dividend each year. It may pay on quarterly or annually basis. However, the bottom line is it represents the return on investment for owning a stock. So hence, you should be interested to look for stocks that have high dividend yield. 

Roughly, it could be in the range from 2% to 7%. If it’s more than 7%, re-compute the yield; dividing dividend per share by the current share price. The yield may be distorted by the current share price. Otherwise, you may get yourself will-be a jackpot. Insofar, you need to select ten big market cap stocks with the highest dividend yield.

Lowest Stock Price

The golden rule in trading is buy low and sell high. So, apply that rule and select five stocks with the lowest price. Please don’t make any preferences on the stock selection. You must eliminate any emotional attachment. You should not be saying’ ‘I feel these stocks would go further up’ although you know the prices are among the highest. 

Finally, you would have five big market cap stocks with a good dividend payout record at a bargain price. If you are thinking of diversifying your portfolio, apply this screening method on other markets as well. 

At the beginning of the year, buy equal amount of each of these five stocks. Hold them for a year. Then, sell them before Christmas or perhaps before the correction periods of stock exchanges (usually during last quarter of the year). Simple, isn’t it? How long does it take you to come out with five bargain big market cap stocks? Is your portfolio in the positive territory?

In conclusion, the timeframe for this method should be about a year. In essence, it tries to capture a year cycle of stock market. Having said that, the pre-requisite for this discipline does not implied that investors should hold for a full year. It is just a guideline not a rule.