PowerStocks Methodology

We will compare shares from the JSE ALSH ORD stock set to see how they have grown since the bottom of the last significant bear market in May 2003 to the peak of the last bull market in May 2008 (click on attached graphic for a detailed view.)



We will compare the growth rates of each stock over the 5 year ("A" to "B") period to key fundamental "value" indicators/ratios of each stock at the bottom ("A") of the last bear market. We will look at P/E, PEG, Price/NAV, Debt Ratios, Earnings growth etc.

We will then try to determine any correlation between these indicators/ratios and extent of growth achieved to finally derive a model for selecting (screening) value stocks most likely to achieve superior growth from point "C" onwards. Only "tradeable" stocks are considered that have at least 3 trades executed per day. There are about 100 stocks on the JSE that do not meet this criteria and we will not consider them since they are hard to trade and equally hard to liquidate to realise a profit.

We will also evaluate some famous "Score based" systems such as the Piotroski "F" Score system used to select stocks most likely to survive bear markets, and their effectiveness in predicting the stocks that showed superior growth since the last bear market. We will publish the first ever Piotroski ranking system of the JSE.

Finally we will use combinations of the above to present the first ever JSE fundamentals-based stock screening, ranking and scoring system that investors can use to select robust, powerful stocks most likely to outperform the market in the next bull run. Using our screening methodology in the last big bear market we would have picked 6 stocks that eventually grew in excess of 1,000 percent on average as opposed to the ALSI growth of 350%.

All of the above three objectives have not been done on the JSE and/or published for the general South African public before.

NEXT UP : Introduction to the PE Ratio