MSN Money Down and Out Value Stock Finder

This screen uses MSN Money’s Custom Screener’s unique capabilities to find those companies with strong historical sales growth and profitability histories that have recently stumbled. MSN Money offers one of the Web’s most powerful and flexible screening programs. Unfortunately it is also one of the most challenging to learn, especially since MSN Money offers only limited instructions.

It’s worth learning if you have the time and the inclination. There is too much information to cover here, but here’s a brief rundown—go to MSN Money’s Stocks page (moneycentral.msn.com/investor). Select Stock Screener and then Custom Search. The screener looks something like a spreadsheet with rows and columns. The rows are initially blank, and you fill them in as needed. Each row holds one search specification and three columns: Field Name, Operator, and Value.

Place your cursor in the Field Name area of the first row and click to bring up the screening parameter menu. Pick a parameter, and then move your cursor to the Operator column and choose one. Choices are arithmetic symbols such as the “equal sign” or the “less than or equal to” symbol, and the like. Then move to the Value field where you can enter a custom value or pick another parameter.

MSN Money provides no list of available parameters. So you’ll have to browse through the various categories to find out what’s available and where to find it.

I’ll explain the process in more detail as I describe the screening parameters. For clarity, I’ve listed each search term in MSN Money’s Custom Screener row format.

Return on Assets

Operator: <=

Value: 0.7*ROA: 5-year Avg.

Specifies companies with ROA (based on the last four quarters’ earnings) no greater than 70 percent of the firm’s five-year average ROA. This term finds companies with depressed ROA compared to its historical averages, a desirable trait for a value candidate. Entering the “0.7*” part of the value parameter is tricky. Select Custom Value. Type 0.7* and click the down arrow on the right side of the Custom Value box and select the Five-Year Average ROA parameter.

ROA: 5-Year Avg.

Operator: >=

Value: 10

Specifies that qualifying companies have five-year average ROAs of 10 percent or higher. This term insures that companies passing the screen possess a history of above-average profitability.

Price/Sales Ratio

Operator: <=

Value: 2.5

Requires a P/S ratio no higher than 2.5, insuring that the screen finds only value-priced stocks.

Debt/Equity Ratio

Operator: <=

Value: 0.5

Screens out debt-heavy companies.

Current Ratio

Operator: >=

Value: 1.1

Screens out firms facing a short-term cash crunch.

Avg. Daily Vol. Last Qtr.

Operator: >=

Value: 50,000

Specifies 50,000 share average daily volume to screen out stocks with insufficient trading volume (liquidity).

12-Month Revenue

Operator: >=

Value: 50,000,000

Requires a minimum of $50 million annual sales during the last four quarters to weed out firms without substantial sales.

Rev. Growth Qtr vs. Qtr

Operator: <=

Value: 0.5*5-Year Revenue Growth

Requires that the last quarter’s year-over-year sales growth be no more than 50 percent of the company’s five-year average annual sales growth. This condition identifies companies with recent sales growth below long-term trends, a hallmark of promising value stock candidates.

5-Year Revenue Growth

Operator: >=

Value: 10

Requires that passing stocks must show 10 percent minimum long-term sales growth. This term, combined with the previous test, insures that although currently down and out, qualifying firms have a reasonably strong historical sales growth history.

Mean Recommendation

Operator: <=

Value: Moderate Buy

Requires that passing stocks have average analysts’ recommendations of “moderate buy” or worse. Analysts’ moderate buy ratings (buy) are between real buys (strong buy) and sells (hold), and indicate ambivalence at best, a desirable quality for value candidates.

Results

I turned up 29 candidates in a variety of different industries when I ran the screen in March 2002. Try increasing the minimum ROA and reducing the maximum price/sales ratio if you get too many hits. Reduce the minimum ROA and the minimum current ratio (to 0.9) if you get too few.