As promised below are some excerpts from another CAPS screening article on Motley Fool. As I mentioned before my goal is to prove that you can beat the market by using free internet tools instead of expensive research.
I've started tracking the results of my first 3 screens and so far 85% are ahead of the S&P. Please feel free to check out the latest one!
In my opinion, too many value investors out there still mistakenly believe that a 50% slash in a stock's price means they must be getting a good deal. Recent continued declines in the "deep value" sectors have exposed the dangerous flaw in this strategy.
Single-digit P/Es and "dirt cheap" prices do not equal value. Look at former dry-bulk-shipping darlings like DryShips (Nasdaq: DRYS) and Genco Shipping (NYSE: GNK), which were cut in half between their late-2007 peak and early 2008. After a brief recovery in mid-2008, they have proceeded to decline precipitously, despite being touted by many as deep values with great dividend yields. So much for the "simply buy low P/E stocks" mantra.
Investors who bought DryShips after the initial 50%-off sale have proceeded to lose an additional 90% of their investment, assuming they've held on thus far. Our Motley Fool CAPS screener could have helped you avoid making such a mistake. Despite its unquestionable "hotness" in 2007, DryShips has never carried an "investment-grade" rating in the minds of the CAPS community, topping out at a paltry two stars over the past two years. At best, that rating represents the upper levels of the CAPS "junk status."
Specifically, the following screen sought:
* CAPS ratings of three to four stars on June 2, 2008, around the market's summer high
* Recent CAPS rating of four to five stars.
* Market cap of $500 million to $50 billion.
* Debt/equity ratios of 20% or less.
* Share price between 50% and 80% below the 52-week high.
Five names have made the cut:
Obviously this is not in any way a recommendation but rather simply an example of how to use the free tools out there to generate ideas.
Stay safe out there, skepticalcapitalist@gmail.com
