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Screen For Peter Lynch Buys
Posted by: GuruFocus (IP Logged)
Date: June 10, 2013 07:48AM
In a recent article we described How to construct Peter Lynch’s Valuation Charts with GuruFocus financial charts in two clicks. As pointed out Peter Lynch, when a company’s stock price is traded far below its earnings line, the chance of the stock going up is much higher. We got a lot of questions from users on whether we can create a Peter Lynch Screener which filters the stocks that are traded below Peter Lynch’s Earnings Line. Actually you can easily create a Peter Lynch Screener with GuruFocus All-In-One Screener.
The filter settings are like this:
1. We limit the industries that the companies are in to less cyclical ones. The reason we do this is because Peter Lynch’s approach works better for the companies that are more consistent in revenue and earnings growth.
2. Business predictability of at least two star. Similar to above, we want to limit the Peter Lynch Approach to the companies with more predictable revenue and earnings growth
3. The companies grow their earnings at a minimum of 6% a year.
4. Its current P/E ratio is less than 13. Because Peter Lynch drew his Earnings Line at P/E of 15, limiting P/E to 13 will roughly satisfy his requirement of Price Line is drastically lower than the Earnings Line.
With this Peter Lynch screener we found 56 stocks as of today. We believe that our strict limitation on the industries and the Predictability Rank reduced the numbers of stocks that can pass the screener. But we are ok with that.
Here are some of the stocks that passed the screen:
Alliant Techsystems Inc. (ATK)
This is the Peter Lynch Chart of Alliant Techsystems. The defense contractor’s stock prices have tracked the Earnings Line very well until 2010. It is now traded about 30% below its Earnings Line.
UnitedHealth Group Inc (UNH)
Below is the Peter Lynch Chart of United Healthcare. Historically UNH stocks have been traded above the Earnings Line. But after 2008, with the government taking more control of healthcare, the stocks have been traded lower than the Earnings Line. Now it is still relatively low, but the stock is traded at close to all-time high.
Please go to Peter Lynch Sceener for the complete list.
Stocks Discussed: ATK, UNH,