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Stock Ideas

A stock screen is a filtered list of stocks. The filtration is done according to some criteria that is likely to remove less investment-worthy companies from the list.

A stock screen is a filtered list of stocks. The filtration is done according to some criteria that is likely to remove less investment-worthy companies from the list. For example, a (very) simple stock screen could be a list of companies whose profits have increased during the last year. Normally, most screens are a little more complex and apply many criteria simultaneously to arrive upon a list of stocks that may be worth investing in.

It is important to understand that stock screens are not the final step in choosing investments. If you just buy stocks listed in a stock screen, you could well end up buying a bad investment. Instead, stock screens are the first step in the process of choosing stocks. They throw up investment ideas which can then be studied and evaluated by a closer study of the companies.

The following pages give you a series of stock screens. Each has description of the screen used along with the companies that were thrown up by the screen. All these screens were applied after applying the basic filter of membership of the BSE 500 index.

A Jump in Q1 Earnings
The last two months have not been great for the equity investors. The clouds of uncertainty are looming large and volatility remains high. But one thing that can set the markets back on course is strong first quarter (ended June 2006) results. Good results can infuse the much-needed confidence in the investors which will be vital to fuel the markets to newer highs.

While the results keep pouring in, we searched for the companies that have reported a sizeable jump in the earnings vis-à-vis the previous four quarters. These are the stocks whose earnings per share for the quarter ended June 2006 is at least 30 per cent higher than the earnings for each of the preceding four quarters. It is important to note that out of the constituents of BSE 500, the latest quarterly results of only 126 companies were available so far, and therefore, this screen is restricted to the universe of these 126 stocks. But we will re-visit this screen next time as more results would have been announced by then. The list is sorted in the descending order of earnings per share for the first quarter ending June 2006.

Stocks Near 52-Week Low
The best time to hunt for some scorching bargains is often right after a slide in the stock markets. And after the steep fall, the domestic markets should be ripe with such bargains. As mentioned earlier, it might just take a few good results announcements to bring herds of investors back to the bourses. If that be the case, then what would be a better time to buy stocks than now, when plenty of them are available near their 52-week lows?

For this screen, we looked for stocks which are available within a range of 2 per cent from their 52-week lows. To make the screen more meaningful, only those stocks have been considered which have been around for at least 52 weeks. Therefore, stocks which have been listed only in the last one year have been excluded.

But you have to be really careful here. Many of these stocks have fallen substantially in the last one year period. And a falling stock could well turn out to be a falling knife. You will have to be careful enough to steer clear of it. The proposition of buying at a low price is not a substitute for due diligence. The list is sorted in the ascending order of price.

Big Forex Earners
Companies which derive a chunk of their revenues from exports can add a lot of value to a portfolio. Since their earnings are linked to foreign markets, these companies are less likely to suffer a severe impact because any turbulence in the domestic economy. During an economic downturn, their bottom lines may not take as severe a hit as the ones whose area of operations is restricted to the domestic boundaries. Therefore, they can add an important dimension of diversification to one's portfolio.

Generally speaking, it's the technology sector companies that would head such a list. To look beyond them, we searched for non-IT companies that have substantial foreign exchange earnings. This is the list of companies whose forex earnings, as percentage of sales, has been more than 50 per cent in each of the financial years since 2001. It is important to point out that we have only considered foreign exchange earnings from goods and services for this screen, while leaving out foreign exchange earnings in the form of dividend, interest etc.

Further, the recently-listed companies whose financials are not available since 2001 are not excluded from the list. If they meet our criteria since the time their financials are available, they are included in the screen.

The list is sorted in the descending order of foreign exchange earnings. As you can see, after the technology companies, it's the pharmaceutical companies that are earning big from their offshore operations.

Versatile Performers
Price-Earnings (P/E) ratio, dividend yield and capital appreciation are some of the basic numbers to look at while choosing stocks.

And for this screen, we went fishing for the stocks which are placed well on all these three aspects in the universe of BSE 500 stocks. We looked for stocks which meet each of the following three criteria. Firstly, they should have a dividend yield of at least 3.5 per cent (which is significantly higher than the average yield of 2 per cent for the BSE 500 stocks).

Secondly, their stock performance should be decent, i.e., at least 10 per cent return over the last one year, which would have placed them in the top half of the universe of BSE 500 stocks.

And finally, they should have a P/E ratio of less than 15 which would make them quite reasonably valued in comparison to Sensex which has a P/E multiple of just under 18 and the average of BSE 500 stocks of close to 37.

There were only nine stocks that could make it to the list, which is sorted in the descending order of dividend yield.

Fund Action
If you find merit in the strategy of following the smart guys, i.e., buy what they buying and sell what they are selling, then this screen can be of immense use to you. Here, we have identified the stocks that have been bought the most and sold the most by them over a one-month period. For this, we compare the last two portfolios of all the funds to derive the collective opinion of fund managers. We would publish this screen every month to provide you with the details of what are buying and selling. The lists are sorted in the descending order of the change in total investment in the stock. In comparison to last month's screen, three stocks made a re-appearance this month, though for different reasons. While the fund managers continued to remain bearish upon L&T, State Bank of India dropped on the popularity charts this month as it shifted from the list of most bought stocks to that of the most sold ones in the month of June. ONGC, on the other hand, found a lot of takers this month as funds picked up close to 19 lakh of its shares. From being one of the most sold stocks in May, the energy sector giant moved to the list of most bought stocks.