Searching For Stock Opportunities In Sliding Markets
Analysts are divided on whether market falls of recent weeks represent a mere blip or more significant correction for equities but no-one can argue that the past month has been unkind to stocks.
For those of us with an eye on the blistering performance of momentum strategies during the early part of this year, the universe of stocks has got a hell of a lot smaller. Indeed, by shedding 300 points since mid-March, the FTSE 100 has been on a dire run of the like not seen since last June.
But it’s not all bad news. For investors on the hunt for companies that are able to resist the vagaries of the market, there are ways of finding them. Using Stockopedia PRO’s custom stock screener, its easy to root out stocks that have so far resisted the current market movements and with positive indicators that could make them worthy of further inspection.
A typical set of criteria to highlight strong growers showing price resilience might include:
- Relative Strength over 1 month gt; 4%
- Relative strength over 6 months gt; 0
- Market Cap £m gt; 20m
- EPS Growth % gt; 10%
- EPS 3y CAGR gt; 10%
- Forward EPS Growth % gt; 10%
- Forward P/E lt; 23
Shaken not stirred
Of the 29 stocks that meet these criteria by far the largest is drinks giant Diageo (LON:DGE) whose shares have been on a strong run since last summer and already qualifies for our 52 Week High Momentum Screen. The company delivered a robust set of half-year results in February, with growth across many of its major brands, including Johnnie Walker scotch, Smirnoff vodka and Guinness. Overall, its efforts to expand in emerging markets have offset more challenging conditions in the UK and Europe. On that front, a move to buy Mexican tequila maker Jose Cuervo is believed to be in the pipeline. Diageo’s share price performance was given a boost recently with an upgrade from UBS, which reiterated its “buy” recommendation and increased its target price from 1,600p to 1,700p.
Among the smallest companies on the list is £38m AIM quoted market research specialist Brainjuicer (LON:BJU), which has so far shown little sign of being dragged down by the market over the past month. The company has grown every year since listing in 2006 and profits were up by 24% to £2.8m in 2011, triggering a 25% rise in the dividend to 3.0p. Shares in the company have gained 8p to 305p since the final results at the end of March – and with a forward P/E of 18.9 the market appears to have bought in to the story. With its impressive earnings growth, BrainJuicer also qualifies on our William O’Neill CAN-SLIM screen.
Greek mobile telecoms and software company Globo (LON:GBO) already meets the criteria for six of our value, growth and quality stock screens, and the relative strength of its price versus the market continues to draw attention. Profits at the company surged by 160% to €12m last year as it piled its resources into developing its mobile service offering around the world. Brokers continue to rate Globo a “strong buy” and for investors prepared to stomach the risks of a fast growing technology play, the forward P/E of 5.9 appears modest.
Meanwhile, AIM quoted wealth management group Brooks Macdonald (LON:BRK) saw its shares surge earlier in February on news of growing profits and funds under management during the first six months of the year. The company appears to have ridden out most of the recent market volatility, earning it a place on five of our growth and quality stock screens, including our take on Jim Slater’s Zulu Principle strategy and Warren Buffett’s Sustainable Growth screen.
Finally, FTSE 100 quality and safety testing group Intertek (LON:ITRK) has seen its shares soar from 2,066p to 2,549p so far in 2012. A strong set of final results in March contributed to a series of broker “buy” ratings which have helped the company withstand FTSE declines. The performance means that Intertek qualifies for two Stockopedia screens, including Jim Slater Zulu Principle and Value Momentum.
With London markets continuing to offer little inspiration, and volatility sucking momentum away from stocks, investors are having to look harder for buying opportunities. By seeking out those companies that have held their ground or continued to see their prices rise despite the turmoil of recent weeks, investors can get a fix on which of them can still deliver in tough times. As always, there are more filters that could be applied to the screen and more searching question to be asked of individual stocks. But in depressed conditions, this could be a useful starting point.