In this briefing:
1. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019
Increasing risk apparent
- Q4-2018 Small-Mid Cap High-Risk screen ( Screening the Silkroad: Small-Mid Cap – High-Risk Names To Avoid Q4 2018 ) delivered a market cap average share price decline of 4.5%. This compares with the MSCI Asia Pacific Index appreciating 4.2% over the same period.
- Our screen looks for high valuation multiples presented by candidates, with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress.
- The Risk to this screen: The Financial and Utility sectors are not covered in this screen. Moreover, “risk is not a number, it is a concept or notion”, as James Mortiner cited during his time at Société Genéralé. Hence, some stocks due to their business model being realigned to a more profitable approach may appear on this screen, whilst also be a member of more positive value or quality screens.
- 26-stocks appear in our Q1 2019 screen. Eight (8) of which are new, namely from Korea, Japan and Taiwan. Singapore remains absent from the screen for the third quarter running, whilst New Zealand has only presented one candidate in Q4 2018.
Our screen suggests that risk is increasing amongst the small-mid cap universe, as the Alman Z average score slips to 1.14 in Q1 2019 from 1.16 in Q4 2018 and 1.38 in Q3 2018. Moreover, our average stock in the list has a ranking of 42.3, compared to 54.9 in Q4 2019.
Our screening styles
For those that follow us, you will know our Stock Ranking system from our Notes from the Silk Road: Setting Out Our Small-Mid Cap Lemonade Stand For newcomers to our notes, it is merely a tool for identifying favourable and unfavourable stocks. In addition, to add more depth to our selection process we also monitor a series of “style categories” namely:
■ Growth,
■ Value,
■ Quality,
■ Momentum,
■ Deep Value,
■ Income,
■ Underperformance.
Within these style categories, we drill down further through a series of alpha momentum screens allowing us to differentiate and identify stock picks.
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