I track many quantitative strategies in the search for undervalued stocks. These strategies often produce similar lists of potential investments because they all demand that a stock trade at a low price in relation to at least one fundamental factor.
A Quick Strategic Review
The High Dividend Yield approach, which is sometimes called the Beating the TSX, Beating the DOW, or the Dogs of the DOW, is the most straightforward screen. It simply looks for stocks that have the highest dividend yield.
When looking for high yielding stocks it is always a good idea to determine if the Dividend is at Risk. Keep an eye out for stocks with high dividend payout ratios.
The Value Ratio approach demands that stocks have both a high dividend yield and a high earnings yield (or low price-to-earnings ratio). The Value Ratio itself is simply a stock's P/E ratio divided by its dividend yield.
Graham's Approach is really a very simplified version of Graham's approach for defensive investors. Here a stock must have both low price-to-earnings and price-to-book ratios.
Finally, the Value 60 is a complicated screen. It demands a combination of low price-to-earnings, low price-to-book, low price-to-cashflow, low price-to-sales, and high dividend yield.
Here are several other screens that we've been following for different publications. We've had very good success with several and all should pique the interest of value investors.
Graham's Simple Way
Graham's Solid Stocks
MoneySense Top 200 Canadian Stocks
MoneySense Top U.S. Stocks
MoneySense Top Income Stocks and Trusts
Dividends and High Yield Stocks
A Few Free Online Screeners
A Word of Warning
Any quantitative screen should just be the starting point in any investigation. Every investor should take a much more detailed look at a stock, and talk to their advisor, before investing.
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