PowerStocks PriceFinder

If we were to combine our PE criteria with the Price:Book criteria we should be getting close to a fairly powerful value-based stock selection system. Our "PriceFinder" has the two criteria that have individually shown to statistically, on average, significantly outperform the ALSI. Here we will find stocks that have P/E between 2 and 6 AND are trading at less than book (net asset) value. We also only look at stocks that trade on average more than twice a day.

It is important to note that the PriceFinder merely seeks out stocks that are available at highly reasonable fundamental valuations based on Price, Earnings, and Book Value and have a maximum probability of market outperformance based on the historical statistical groupings of these values. These are by no means the only stocks likely to outperform the ALSI and indeed the PriceFinder selection method has no bearing on the stocks' financial soundness or business prospects.

In the trough of the 2003 crash, we found 111 stocks with a Price:Book less than 1, averaging 585% growth in the subsequent 5 year period. We also found 39 stocks trading more than twice a day and with a PE between 2 and 6, averaging 508% growth in the subsequent 5 years. Combining the two criteria however, only yielded 11 stocks averaging 741% growth in the subsequent 5 years. Combining the criteria significantly narrowed the field and boosted the subsequent average growth of the portfolio.

We bet you are just itching to see what stocks on the JSE currently meet these criteria right? Below is the list of 19 JSE shares as at 29 October 2008 meeting all three criteria for the PriceFinder (PE, Price:Book and at least three trades a day). Click on the image for a larger view.


Remember that some or most of these stocks will be "obscure", since the selection criteria are typically those of "neglected or overlooked" stocks (but which we have determined, hold incredible value).

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