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May 31, 2002

Screening for Ideas

By Kathryn M. Welling

Inspired, in part, by Kevin Johnson's agreement that the market's mega-caps still look awfully vulnerable-and also by Steve Galbraith's message that sitting back and accepting a style straightjacket is, well, crazy - I did a little casting about for some fresh, or at least different, investment ideas. The pond I started trolling in contained almost 10,000 stocks, the entire AAII universe, and the methodology was nothing particularly fancy. But the results, displayed in the two charts across the bottom of this page, are reflective of a market whose character has maybe not changed as dramatically over the last 18 months as you might guess on first glance at Kevin's chart.

First, a word or two on some of the stocks that didn't make either cut: the mega-caps. They didn't make the cut for the bottom chart, of "Over-Owned and Over-Valued" Stocks without Yields, not because they aren't richly priced, but because-in a nod to Steve's notion that, at this market juncture, companies actually showing some growth could become true values-I included a growth measure in the screens.

Over the last 52 weeks, 57 stocks with market caps of $11 billion-plus have appreciated more than the average stock.

So what about the stocks listed in the tables below? First, an important disclaimer: They're the product of screens, not fundamental research, and should be approached with every caution that implies.

The companies aren't small caps but have no more than 50 percent of their shares in institutional hands, implying there might be someone left to buy. Their PEG ratios and Price-to-Book, while not necessarily table-pounding by themselves, at least are lower than the average for their respective industries.

What's intriguing, as intimated, is the composition of the lists-it's not all that different in the types of companies that would have shown up on the two lists 18 months ago. Utilities, mines, energy "undervalued" and tech, health care and financials, broadly speaking, "over-valued."