The screen that I have found the most interesting is Domash’s “Bulletproof” screen. It is a screen that finds companies that are less likely to go bankrupt.
In 2003, Mr. Domash used the following criteria to find financially safe companies.
- Positive Cash Flow
- Current Ratio > 1.5
- Debt to Equity < 0.4
- Reported Annual Sales > $50 million
- Net Profit Margin > 0
Looking back to 1997, one finds that just using this simple screen would have limited one to a stock universe that averaged an 8.23% annual return. Pretty good considering the S&P 500 average since then was 6.67%.
Using the screen from Mr. Domash’s 2003 book would have generated 771 potential stock candidates, with the five largest being:
- Apple, Inc (AAPL)
- Google, Inc (GOOG)
- Microsoft Corp (MSFT)
- Johnson & Johnson (JNJ)
- Chevron Corp (CVX)
Interestingly, though, Mr. Domash changed his algorithm in his most recent edition of his book, and blogged about it here. While the changes may be subtle, the results are significantly different.
- Debt to Equity <= 0.1
- Quick Ratio > 2
- Cash Flow > $100,000
- Net Income > $100,000
- Annual Sales > $50 million
- Stock Price > $5
I am unable to find why he made the change, but if one had used this strategy since 1997, it would have presented a stock universe that yielded 6.92% annually, only slightly better than what Mr. Market would have yielded. The number of stocks generated as potential candidates was also slimmer; only 291. These are the five largest:
- Google, Inc (GOOG)
- Qualcom, Inc (QCOM)
- Facebook, Inc (FB)
- Yahoo! Inc (YHOO)
- VMware (VMW)
As I stated before, it is unclear why Mr. Domash changed his standards. Perhaps it is because once available free screens do not exist anymore. Who knows, but my suggestion is stay with the older screen as an initial start.
By the way, Mr. Domash does have a website called Dividend Detective, and one can find a link to his current “Bulletproof” stocks. Click here to review on your own.
- Brett Arends’s ROI: To beat the market, buy quality (marketwatch.com)
- A New Finding (ornamentalelements.com)
- 5 Jaw-Dropping Medical Uses for the iPhone (fool.com)
- Should I Buy LNKD Stock? 3 Pros, 3 Cons (investorplace.com)
- P/E Matters (tdpresearch.wordpress.com)
- The Wait for the New Yahoo! Is Nearly Over (fool.com)
- UBS Has Six Large Tech Stocks to Buy That Every Investor Should Own Long-Term (247wallst.com)
- Five financial Android apps to regulate your dough (reviews.cnet.com)
- 4 Reasons YHOO Stock Will Sputter In 2014 (investorplace.com)