SocGen’s Investment Screens Show Lack of Value, Quality Income Stocks

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SocGen’s developed market quantitative screens cover a universe of global stocks having a market cap of $100M or more and excludes financials.

SocGen analysts Andrew Lapthorne, Rui Antunes, John Carson, Georgios Oikonomou, Michael Suen and Josh Cherian draw attention to the solid gains achieved across all regions during 2013, with their universe up 32.6% on average.

The low-hanging fruit is gone

But this surge had an adverse fallout for investors. “We should first note the remarkable decline in the number of companies that qualify for our quality income and deep value screens. From 116 companies that passed our screens at the end of 2012, we can now only find 38 (22 quality income and 16 deep value companies). This is a result not only of the strong market performance but also of the disappointing profit growth during 2013, which has pushed up equity valuations significantly making good candidates harder to find,” says the SocGen research note.

One observes that the both graphs in the above chart are down to within handshaking distance of levels seen during the heady, pre-crisis days.

SocGen’s Greenblatt Magic Formula model

Value Investor Joel Greenblatt’s Magic Formula involves buying cheap stocks that have earnings yield and provide a high return on capital.

SocGen’s screen based on the above formula returned 8.3% during 2013.

Value And Quality Income Stocks

Interestingly, the top four companies in the overall rankings of Greenblatt model names are from the Consumer Goods or Consumer Services sectors:

Rank#1 – Altria Group Inc (NYSE:MO) (United States)

Rank #2 – Reynolds American, Inc. (NYSE:RAI) (United States)

Rank#3 – DeNA Co., Ltd. (TYO:2432) (Japan)

Rank#4 – Lorillard Inc. (NYSE:LO) (United States)

Value And Quality Income Stocks

SocGen’s Graham & Rea Model for value stocks

Value investing legend Ben Graham and aeronautical engineer James Rea developed a formula containing 10 points (five for valuation and five for risk) for building a portfolio around the theme of deep value picks.

SocGen’s model just managed to be profitable in 2013 and returned 1.2%.

Value And Quality Income Stocks

The top stocks as per this screen are shown below in this table:

Value And Quality Income Stocks

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