1. 1 SCREENING FOR GOOD COMPANIES Part 2 of 2 Education Segment Cincinnati Model Investment Club James Hurt July 19, 2003

2. 1 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. 1 Ways to Screen For Good Companies Use screens done by others Use what others are investing in Use pre-defined computerized screens – Google search on “Stock Screen” produced over 8,190 internet pages. – Almost all provide limited choices oriented toward technical traders, and are of little use for NAIC type investors. Develop your own computerized screen – I will use Multex Powerscreener tool. http://www.multexinvestor.com/nscreen/builder.asp

4. 1 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 are not provided in the database.

5. 1 Preparing For Your Own Screen Find an on-line screen whose database includes items of interest to NAIC investors: – Sales (small, medium, large) – Sector and Industry – Debt to Equity – Fraction owned by institutions – Growth rates for EPS (1 Yr, TTM, 3, 5, 10 Yr) – Growth rates for Sales (1 Yr, TTM, 3, 5, 10 Yr) – Pre-Tax profit margins (do not use EBIDTA) – Return on Shareholders Equity

6. 1 Preparing For Your Own Screen A Screen consists of several criteria (mathematical statements) which may be true or false for any given company. Only those companies where all the criteria are true pass the screen. Each criterion compares a company statistic with a value, e.g.: – {SalesTTM} >= 4000 – The “arrow” points to the smaller number when this criterion is true.

7. 1 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: {Pr2BookQ} = Ratio of Price to Book Value {PEExclXorTTM} = Ratio of Price to Earnings – Hence Price Cancels out: Row 2B: {Pr2BookQ} / {PEExclXorTTM} >= 0.2

8. 1 Powerscreener Opening Page Pick here to add criteria How many pass screen

9. 1 Adding a Criterion Select a variable Select an operator Enter a value Run the Criterion

10. 1 Adding a Criterion There were 693 companies with good values for Row 2B.

11. 1 Company Size Small companies – {SalesTTM}<=400 Large companies – {SalesTTM}>=4000 Middle sized companies – 400<={SalesTTM}.AND. {SalesTTM}<=4000 This last is the combination of two criteria using the.AND. Operator.

12. 1 Adding a Criterion There were 221 middle sized companies with good values for Row 2B.

13. 1 Consistent Sales Growth Sales growth this quarter – {Sales%ChgPYQ}>=15 Sales growth last twelve months – {Sales%ChgTTM}>=15 Sales growth last fiscal year – {Sales%ChgA}>=15 Sales growth last 3 years – {Sales3YCGr%}>=15 Sales growth last 5 years – {Sales5YCGr%}>=15

14. 1 Consistent Sales Growth Can do via five criteria Or can combine the five criteria into one using the.AND. Operator – {Sales%ChgPYQ}>=15.AND. {Sales%ChgTTM}>=15.AND. {Sales%ChgA}>=15.AND. {Sales3YCGr%}>=15.AND. {Sales5YCGr%}>=15

15. 1 Adding a Criterion There were 53 mid-sized companies with good values for Row 2B and consistent high growth in sales.

16. 1 Consistent Sales Growth There were 38 mid-sized companies with good values for Row 2B consistent high growth in sales and in EPS.

17. 1 Adding another Criterion Pick from the set of Industries that are in the database.

18. 1 Adding another Criterion There were 4 mid-sized schools with good numbers for row 2B and consistent high growth in sales and in EPS. See which 4 by picking on the number.

19. 1 Looking at the Results These are the four schools that the Multex database says are mid-sized, have good numbers for row 2B, and have consistently high growth rates.

20. 1 Disclaimer “We would like to remind readers that this screening is based on the database being used, on judgments and estimates of others, 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.” Paraphrased from Philip J. Keating, NAIC Growth Screen