In this post I will present to you a strategy that has been consistently and heavily outperforming the market as well as the stocks that currently pass it. The strategy is saved in Equities Lab as Rising Income and EPS Growth Top 10 and it is composed of 100% fundamental criteria. The image below displays the editor in which the strategy is comprised of:
The editor is words is saying:
- The stock must have rising EPS meaning that the past four reported quarterly EPS must be greater than the same quarter the previous year.
- The stock must have rising Income after taxes meaning the past four reported quarterly income after taxes must be greater than the same quarter the previous year.
- The stock must have a market cap greater than $250 million.
- The stock's valuation based on EPS and EPS estimates must be at least 50% greater than the most recent closing price.
- The stock's estimated EPS growth over the next 3 years must rank in the top 35% of the entire market.
- The results are then ordered by the sum of the Equities Lab buzz, income statement, and value score and only the top 10 stocks pass. The higher the buzz score the higher the bullish institutional, analyst, and insider activity is surrounding the stock. A high income statement score means the stock has a solid and improving income statement compared to the previous quarter and year. A high value score indicates the stock is under priced compared to others in its industry.
Now that we have discussed what makes up the Rising Income and EPS Growth Top 10 strategy, let's now discuss its impressive back test performance.
The is one of our best performing stock screeners. This graph above tells you why. According to our back test, the strategy produced a total return of 3988% between January 2003 and today (April 2014). That comes out to a 38.57% annualized return. Our back test hypothetically buys stocks when they pass a strategy and sells them when they no longer pass with a weekly rebalance. A more detailed description of our back test can be found here.
The graph below breaks down the performance each year the back test covers.
As you can see the strategy outperforms the S&P 500 in each of the 12 years the back test covers. In 2014 the strategy has returned over 10% while the S&P 500 is up only 2%. The consistent and heavy out performance it what makes us so bullish in this strategy as the performance is rare. Lets now look at the composition of the stocks that have passed this strategy since 2003 up until today.
The two graphs above represent every single stock that was included in the back test of the Rising Income & EPS Growth Top 10 strategy since 2003. As you can see the strategy is pretty equally weighted in terms of market cap. I terms of sector, technology stocks had the majority.
Let me now present the stocks that currently pass the Rising Income & EPS Growth Top 10 strategy which are Affiliated Managers Group (AMG), Activision (ATVI), United rentals (URI), Colfax (CFX), Catamaran Group (CTRX), USG Corporation (USG), PTC Inc. (PTC), Ultimate Software Group (ULTI), Omnicell (OMCL), & Perficient (PRFT).
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