1 SCREENING FOR GOOD COMPANIES Part 1 of 2 Education Segment Cincinnati Model Investment Club James Hurt June 21, 2003

2 Why Screen For Good Companies You screen in order to: – Identify companies of possible interest. – Avoid analyzing companies of little or no interest. You do not screen in order to: – Make investment decisions.

3 Ways to Screen For Good Companies Use screens done by others – NAIC Growth Screen in BITS Online. – Value Line screens – Standard and Poors Investment Quotient Use what others are investing in – Better Investing 200 – Most Active Stocks in Better Investing Use pre-defined computerized screens Develop your own computerized screen

4 NAIC Growth Screen “The NAIC Growth Screen is presented as a stock screening feature for Online Premium Services subscribers interested in new stock study ideas and updated information on stocks of interest. It is meant to serve as another approach in identifying stocks of possible interest to long-term investors, and should not be interpreted to be NAIC stock investing criteria.” Philip J. Keating

5 NAIC Growth Screen May Issue 57 companies, 20 columns of data about each.

6 Value Line Screens 19 Value Line Screens given near front of book. NAIC Investors are interested primarily in – Stocks with Highest Annual Total Returns – Highest Growth Stocks

7 Value Line Highest Total Returns Please see the full page as part of your handout.

8 Value Line Highest Growth Stocks Please see the full page as part of your handout.

9 Value Line Growth Screen On Line Subscribers to Value Line: – Go to the Value Line page and log on. – Pick “View This Week's Screens” – Use drop down box to pick one of: Highest Growth Stocks Stocks with highest annual total returns (3-5 years) – Pick “Go” to see the selected screen – You can pick to download the Value Line page for any company on the screen. – You can sort by any of the columns.

10 Value Line Growth Screen dated June 13, 2003

11 Some Other On-Line Screens Google search on “Stock Screen” produced over 9,400 internet pages. Some of interest include: Quicken Brokerage Stock Search – – Looks back and forward only one to three years. Yahoo Stock Screen – screen.yahoo.com/stocks.html – Limited choices, oriented for technical traders Hoover's Online Stock Screen – – “Stock screening based primarily on fundamentals.” – Limited choices, oriented for technical traders.

12 Yahoo’s Screen Page

13 Your Own Screens NAIC method is generally not supported on the internet. Rather than make do with criteria that are provided, you can use on-line screens where you enter your own criteria. Doing this requires some preparation. Still cannot do this for everything we want because some data items (Row 2A) are not provided in the databases.

14 Preparing For Your Own Screen Ratios – Earnings per Share = $Earnings / #shares – Price per Share = $Cost of sale / #shares sold – Growth rate of Sales (New Sales – Old Sales) / Old Sales Ratios of Ratios – P/E = $Price per Share / Earnings per Share – Growth rate of Earnings per Share (New EPS – Old EPS) / Old EPS

15 Preparing For Your Own Screen Comparing Numbers: – Ratio of Earnings to Book Value (Row 2B) to be larger than 20%. – On Multex PowerScreener, variables include: {EPSPExclXorTTM} = Earnings per Share {Pr2BookQ} = Ratio of Price to Book Value {PEExclXorTTM} = Ratio of Price to Earnings – Hence Price Cancels out: Row 2B = {Pr2BookQ} / {PEExclXorTTM}

16 Preparing For Your Own Screen Comparing Numbers: – We want companies where Row 2B is bigger than 20%, so we enter: – {Pr2BookQ} / {PEExclXorTTM} > 20 Given any two variables A and B, exactly one of the following is true: – A = B (A and B are equal) – A > B (A is bigger than B) – A < B (A is smaller than B)

17 Disclaimer “We would like to remind readers that this screening is based on Value Line's judgments and estimates and that the information is dated. Always look at the most current information available and do your own SSG analysis, using your own judgments and estimates for any company of interest.” Philip J. Keating, NAIC Growth Screen