Not as well known as some other value investors, John Neff had one of the best track records known in the investment world with an annual 13.7% return vs 10.6% for the S&P 500 over 31 years. Windsor which he managed became the largest mutual fund in existence during Neff’s management. Neff retired from Vanguard in 1995.
Neff wrote “John Neff on Investing” which was published by Wiley in 2001 and which could be used to come up with a screen. John Reese uses Neff’s writings to come up with a screen and allocates weights/points to the rules to get an output.
I base my screen on these rules but I do not use the minor rules (i.e. long-term projected EPS growth, PEG ratio), nor do I allocate a weight. Having gone through the process I understand why Reese used weights. Essentially if you run the screen for all the criteria then you cannot form a model portfolio to either backtest or work from if you screen only U.S. stocks.
I ran my screen on a little under 400,000 securities worldwide with the following criteria:
- P/E ratio must be 40-60% below the market.
- EPS growth must be between 7% and 20%.
- Sales growth must be either 7% or higher, or at least 70% of EPS growth.
- The company must have positive free cash flow in last fiscal year.
- The EPS in each of the last 4 quarters must be higher than the corresponding quarter 1 year earlier. (Essentially, 4 consecutive quarters of year-on-year growth).
- Projected annual EPS for next year must be great than this year’s.
The result was two companies:
- “Advanced Energy Industries” with ticker symbol AEIS US
- “Total Bangun Persada” with ticker symbol TOTL IJ
Analysts appear to agree with the Neff screen as they have an average price target for AEIS and TOTL IJ which is 38% and 23% respectively above current levels!
To help start you off on your analysis, I’ve posted below the FA screen from Bloomberg for both stocks. I know nothing about these two companies but from the below, they look interesting as we see that:
- AEIS has no debt, generates consistent FCF, is growing top and bottom line and has a P/E of 12x.
- TOTL IJ, the Indonesian company, is also growing with an EV/FCF of under 10x.
Let me know what you think in the comments section below!
(Source: Bloomberg)
(Source: Bloomberg)
