Stingy Selections & Dartboard Dynamos
Stock picking contests are both fun and frivolous. The typical
approach is to pick a few high-risk securities and, if possible, to
use massive leverage. While this might be a good way to play the
game, it makes for lousy investing.
In an effort to avoid speculative success, I only use S&P500
stocks with betas of less than one. Beta gauges how much a stock's
price fluctuates and is often used to measure risk. A beta of one is
average and lower beta stocks are less risky.
Companies with little debt are also less risky. I require a
stock to have a debt-to-equity ratio of less than 0.5 and a ratio of
current assets to current liabilities of more than 1. The ability to
pay interest on the debt is ensured by requiring an interest coverage
of more than 2, a positive cash flow and some earnings.
As always, a low price is a must and only those stocks with a
price-to-sales ratio of less than 1 are selected.
With the aid of the MSN.com stock screener twelve stocks were
found that passed my tests on December 5, 2001.
Stingy Picks: Alberto-Culver (ACV), Allegheny Technologies (ATI),
Cardinal Health (CAH), CVS Corp (CVS), Engelhard (EC), FedEx (FDX),
Humana (HUM), SYSCO Corp (SYY), VF Corp (VFC), W.W. Grainger (GWW),
WellPoint Health Networks (WLP) and Worthington Industries (WOR)
Now, any good stock picking contest is incomplete without a
necessary nemesis. The dartboard. I took the list of S&P500 stocks
with betas of less than one and threw twelve darts at it. The result
was a mangled list and twelve randomly selected stocks.
The Dartboard's picks: Alberto-Culver (ACV), Big Lots (BLI),
Burlington Resources (BR), Charter One Financial (CF), Citizens
Communications Co (CZN), FMC Corp (FMC) HCA Inc. (HCA), Hercules Inc
(HPC), Lincoln National Corp (LNC), Meredith Corp (MDP), UnitedHealth
Group (UNH) and Zions Bancorp (ZION).
Which portfolio will win? Value or blind luck? Only time will tell.
Date: Jan 2002
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