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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.

High Yield Stocks
Dividend yield is an important ratio for those who are looking for income from their stock investments. It is simply the dividend declared by the company in the last one year divided by its current market price. There are some reasons why high dividend yielding stocks make investment sense. There is a documented investment style on Wall Street called 'Dogs of the Dow'. In this strategy, an equal amount of money is invested in the top ten dividend paying stocks of the Dow Jones index every year. This strategy did outperform leading indices like Dow Jones, NASDAQ and S&P 500. But for the strategy to be successful the consistency of dividend distribution is also important as a one-time dividend payment can often be misleading. Therefore, for our screen, we have considered only those stocks which have not skipped dividend distribution in any of the financial years since 2002.

Further, the stocks which have delivered negative returns in the last one-year period have been excluded. This is because while focussing upon the dividend yield, capital appreciation cannot be completely ruled out. And the stocks which have plummeted during one of the most profitable years would really call for second thoughts. We decided to filter them out.

Therefore, our criteria includes a combination of high yield, consistent record of dividend payment and positive one-year returns. The table below displays the list of top 20 dividend yielding stocks in the universe of BSE 500 stocks that met our criteria. It is sorted in the descending order of dividend yield.

Sharp Drop in Volumes
An equity investor's worst nightmare is to get stuck with a holding. It is quite painful to see your wealth getting eroded while you are unable to do anything but to watch your losses mount. Liquidity of the stocks is often adversely impacted during the sudden declines of the market and the recent meltdown has been no exception.

Presented below is the list of stocks which saw their average daily trading volumes drop by more than 80 per cent during this troubled phase. For this, we have compared the 365-day average daily trading volume (in terms of number of shares), with the average trading volumes recorded during the one-month period ending June 16, 2006.

We excluded those stocks which got listed in the last one year. The reason is that the volumes are generally high at the time the stock gets listed. This would put an upward bias on the 365-day average volumes, and hence the subsequent decline would look all the more drastic.

The list is sorted in the descending order of percentage decline in the volumes.

Consistent Growth in Earnings
Earnings are at the heart of fundamental analysis. EPS (earnings per share) is the most widely used barometer of the performance of a company and one of the basic inputs in investment analysis. The companies that have the ability to sustain and improve upon their earnings are most likely to command a higher stock price in times to come.

Therefore, the starting point to search for long term winners could be to identify those companies which have a consistent track record of improving upon their earnings. We fished for stocks that have not only reported positive earnings per share in each of the last five financial years, but in each of these years the EPS has been higher than the previous year. In short, we are looking for positive earnings growth in each successive year. Only the constituents of BSE 500 that have been around for the last five years were included in the analysis. Further, the companies whose FY 2006 earnings are not yet available have been excluded.

The following 21 stocks made it to our list. Interestingly, many are available at quite reasonable PE multiples. The list is arranged in alphabetical order.

Fund Actions
While investing in stock markets, many investors simply like to follow the smart guys- buy what they are buying and sell what they are selling. The biggest challenge for this strategy is to get authentic information about the actions of the smart guys.

Over here, we will provide you with details of the stock market actions of the most influential set of domestic institutional investors - the domestic mutual funds. The following list represents the collective opinion of fund managers on certain stocks- the top ten they bought and the top ten they sold over the month of May 2006.

The lists are sorted in the descending order of the change in total investment in the stock.

Big Capitalisation Shifts
These are the stocks that have witnessed a swing in their fortunes over the last one year. The first list lists stocks which have grown substantially in the last one year to find a place among the select large-cap stocks. The second list is the reverse of it- these are the ones which have either plummeted or done little and therefore have lost their large-cap tag. The lists are sorted in the descending order of market capitalisation.

What bears explanation here is how we classify a stock as a large, mid or a small-cap. We classify large-caps as the smallest number of stocks that can together equal 70 per cent of the total market capitalisation of the BSE. Mid-caps are the smallest number of stocks that can equal the next 20 per cent of market capitalisation and small-caps are the remaining companies, whose market capitalisation will add up to almost ten per cent of the market's total value.

While the first list includes some of the most significant movers in the last one year, the second has a cluster of banking stocks.