Letters To S&C by Technical Analysis Inc.
TECHNICAL & FUNDAMENTAL FILTERS
I read Mike Carr & Amber Hestla’s March 2012 article in S&C, “Find The Biggest Winners,” which has the premise that studying the winners of the past 10 years can give you an idea of possible winners for the next five. Based on the article, just to clarify, should I be filtering on the following data points?
1. Market cap less than 300 million
2. Closing prices increasing during the last 12, 24, 36 and 40 months
3. Positive earnings for the past four years
4. 48-month moving average.
Author Mike Carr replies:
There are a number of ways to screen for microcap stocks with strong potential for the long term. The market cap cutoff of $300 million could be raised or lowered to expand or limit the number of buy candidates. Positive earnings are a common factor in big winners from the past — investors want to see results in addition to potential.
A technical screen, such as MACD giving a buy signal, is helpful. That captures stocks moving higher, instead of buying value stocks that are declining toward possible problems. A long-term moving average filter serves the same purpose. It is important to find stocks that others are buying to avoid holding dead money in your investment account.
The requirement for higher prices in the various periods that you mention could serve this purpose.