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Re: [sharechat] 5 POINT PLAN


From: "nick" <acummin@es.co.nz>
Date: Mon, 5 Jun 2000 09:46:12 +1200


       Its human nature that the plan is designed to avoid!! 
It is based on good solid factors that work.  ie low p/e eps growth and good yield.
It takes no notice of rampers, clampers. dumpers, humpers, hypers or heralds!!.
 
 nick

 
Good work Nick.Plan a good one ,what about H/N (human nature) factor ie.greed/fear/panic which often ruins the best laid plans.Regards G   ps. also hold FOR-BRY
----- Original Message -----
From: nick
Sent: Monday, June 05, 2000 8:50 AM
Subject: [sharechat] 5 POINT PLAN

              I have come up with a five rule system for
picking stocks.  I set out to try and look for a system which would
find stocks which were undervalued.   Here it is, let me know what
you think.
 
Rule 1  p/e must be less than 10
Rule 2  eps must be expected to grow in next forecast year
Rule 3   Gross dividend yield of at least 8%
Rule 4   must be within 20% of 52 week low compared with high
Rule 5  Sell when p/e over 12
 
         This strategy is designed to select stocks at a time when they are weak
and sell once they have recovered.   Rule 1 is fairly self explanatory, various
studies have shown that stocks with a low p/e will over time outperform others
        Rule 2 aims at illiminating the generally bad stocks which have a low p/e
because earnings are in decline.   By only selecting those which expect to increase
eps then an improvement is much more likely
   Rule 3 gives a good income while waiting for share price to rise. The yields
are likely to stay good provided the company's make their earnings forecasts
 Rule 4  ensures we are in near the bottom.  If a share drops into its bottom 20%
i recommend waiting to see how near its low it gets before stabiling. Once it hits
yearly low then buy.
    Rule 5 ensures we hold the shares until they have recovered.
 
           None of these rules on their own would be a success, but together i believe
they have potential for finding undervalued stocks, which are fundamentally sound
with reasonable prospects in the future.
         I have run this system over NZ stocks and only 3 company's at present qualify
for selection.  They are
 
                              price              p/e           eps          gross yield         high low  
                                                              1999  2000fc
   Restaurant b        1.15               8.5       14.7    16.4        11.5            156-110
   Force corp           0.41              7.8       5.05      6           14.5             1.03-41
   Breirley               0.32               5.3      3.8       5.2         9.3                54-32
  
          Fletcher building was a strong qualifier but its price has now moved
 off its 20% low compared with its 52 week high.  The system picked building when
it was around 2.00.  Restaurant brands too would of been picked out when it
hit 2.10 but it is still a comfortable qualifier at 2.15.
            There were a few that nearly qualified such as air new zealand, the reason
they didn't was that earnings per share are not expected to increase in the next forecast
period.  Owens group has reached a low but could still be falling, the yield has been cut
and is below 8% so that one didn't make it.
           I used ratios and brokers forecasts from datex on line.  Most sharetables seem to vary
over p/es etc. so i stick to the one source.
           Early days yet but i like the look of this system.  It has been divised with the nz market
in mind, where else can you get such good dividends and low p/es?
          I will monitor this system weakly for performance and check to see if any new
qualifiers, hopefully the market will rally and all stocks will be off their lows!!
    
          Disclaimer own force and breirleys (bought last week) expect to buy restaurant brands this
week
 
  nick
 
  

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