Ask Colin

Many of the stocks you recommended in Shares Weekly or BRW do not seem to come from your value or growth searches. How have you chosen them?

Many of the stocks you recommended in Shares Weekly or BRW do not seem to come from your value or growth searches. How have you chosen them?

First, let me correct something in your question. The stocks that I have discussed in Shares Weekly or in BRW are NOT RECOMMENDATIONS. It says so at the bottom of the BRW columns and said so in the general disclaimer in Shares Weekly. They can not be recommendations also because I can not know the circumstances of any specific reader, so I could not make an intelligent and relevant recommendation. They are merely interesting stocks that readers might like to consider to see whether, subject to their own further research or their adviser's recommendation, they might fit into their investment plan. So, the columns are my view of stocks that might go up or might go down (which is which is always clear from the discussion).

As far as the stocks where I held the view that there is a strong possibility of them going up are concerned, I generally use my established and published methods for selecting them. However, at the time I have the space to write about them may not be the ideal time to have bought them, because at that time I may have used the space I have in the column to discuss some other stock. I may therefore be discussing them during the mark-up phase rather than at breakout.

While there are some exceptions where I discuss a stock that has been extensively covered in recent news, I generally find the stocks to discuss in three ways:

1. The value screen. While I taught the use of a triple test based on PE ratio, AND Dividend Yield AND Price to NTA in the videotape, I have generally found more recently that PE ratio alone will find most of them, as described in the Mini Course on my subscription website. The PE ratio I use is as described in the Mini Course - i.e. related to the bond yield to allow for interest rates/inflation. However, this is not all that critical and a PE of 10 or less is a good all-purpose tool. However, although I screen only for PE ratio, I then check the dividend yield. It needs to be strong for me to proceed to the next step of considering the chart.

2. The 52-week new high in the last 5 (or even 20) days scan as described in the Mini Course. I also sometimes run a 26 week new high scan to pick up faster-moving stocks, with narrower accumulation areas or that have swung from downtrend to uptrend with little accumulation.

3. Visual inspection of charts looking for value model patterns, growth model patterns or already in strong mark-up phases.

Other useful scans are monthly MACD in buy mode and above a 260-day moving average. I use these less often than the three methods described.

This brings me to the specific stocks you mentioned. Normally, I am not able to discuss specific stocks with a particular individual. However, on the understanding that what I now say is NOT A RECOMMENDATION of any kind, but purely an explanation of how I located these stocks for discussion in the columns, I will outline briefly for you how I found these stocks:

Abbreviations: SM = Shares magazine. SW = Shares Weekly. BRW = BRW magazine.

SKE: (SM Apr 02 SW 16 Nov 02) Value model chart, Low PE scan and high DY, 52 week new highs scan.

IAS: (SW 16 Nov 02) 52 week new highs scan. Low PE scan with good DY. Strong mark-up phase, but no accumulation at the bottom.

NBL: (SW 23 Nov 02 BRW 6 Feb 03) Low PE scan with high DY. 52 week new high scan. Break out of accumulation pattern after listing (value model chart).

ABC: (SW 28 Apr 01 and 2 Nov 02) Value model chart. 52 week new highs scan. Low PE scan with reasonable DY.

ALN: (SW 2 Nov 02) 52 week new high scan. Low PE scan with high DY.

AJL: (SW 8 Dec 01 as downtrending stock. SW 26 Oct 02) 52 week new high scan. Value model chart. Had high DY, but no earnings in last year.

CMI: 52 week new high scan. Big value model pattern on monthly chart. Had high DY, but PE was on the high side.

As you can see, all of these stocks came up on the 52 week new high scan and often also visual inspection or the Low PE scan.

You may have noticed that of all the stocks you listed, I personally only bought one of them. The stocks I hold at any time are listed on my web site. That I hold them personally is NOT A RECOMMENDATION because I may have bought them some time ago and my investment plan may be unsuitable for a specific reader. (They are listed on my web site as an up-to-date disclosure of my holdings for anyone reading my BRW columns). However, it does make the point that as a journalist, I need to discuss stocks all the time. Just because I discuss them, they are not recommendations, but simply interesting stocks for readers to consider.

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