Milton Investing for Growth Search

The Search

Jim Slater likes to combine multiple criteria in order to beat the market. As noted, his favoured central criterion is a low PEG, which means that a company is on a low multiple in relation to its growth rate. He then likes to build a safety net around this central criterion. He demands a low PER, cash flow in excess of EPS, positive relative strength and no substantial director selling.

Investing for Growth is the companion monthly newsletter to REFS. Its stock selections are based on specific monthly REFS searches to find tomorrow’s growth companies.

Eaclass="body-small"ch month, Nigel Milton, Editor of Investing for Growth (IfG), and the IfG editorial team use multiple search criteria to find companies that will outperform the market. A similar search, identifying growth companies produced by IfG and also the one which Jim Slater used for the 3rd November 2004 REFS seminar, had the following search values:

• PEG of under 1.0
• Five year normalised average EPS growth of over 10%
• Cash flow per share/EPS greater than one
• One year relative strength greater than zero
• One month relative strength greater than zero
• One month forecast change in earnings greater than zero

How To Run The IfG Milton Search

You can run this search by following these simple steps:

(If you are familiar with how to run a search, then do skip to the table shown between steps 9 and 10, which clearly shows you which values to enter.)

1. logon to refsonline.
2. Click on ‘Tables’ on the pull down menu at top of screen, and select the ‘Setup’ option. A dialog box will appear, entitled ‘Table Creation.’
3. Click on the ‘New’ button option at bottom right hand of this dialogue box. Another small dialog box will appear, entitled ‘New Table Name.’
4. Type in a name for your table in the blank space provided: Milton IfG Search.
5. The dialog box will now contain a new, mostly blank table. You will see that ‘Milton IfG Search’ is correctly entered next to ‘Table Name’ at the top of the dialog box. You can ignore the two fields beneath this, entitled ‘View to Use’ and ‘Order by.’ In the table area itself, you can also leave the ‘Condition’ field as it is.
6. In first row of table, underneath the second column –entitled ‘Field Name’ - click on the empty box below it, and then scroll down the options listed, using the arrow to the left of that box. Select the correct ‘Field name’: PEG
7. Move to the third column, entitled ‘Logic,’ and again click on the empty box below it. Scroll down the options listed using the arrow to the left of that box, and select the ‘less than’ symbol: <
8. Moving now to the fourth column, entitled ‘Value,’ click on the empty box below it, and type in the correct value: 1.0
9. Next, repeat this process in the empty row below the one that you have just entered values for, under each column heading, in order to enter in the other search values that Nigel Milton outlines above, as shown in table below:
10. Field name Logic Value
    PEG < 1.0
    5 yr EPS Gth Rate % > 10
    Cashflow / EPS > 1
    Rel Str 1 Yr % > 0
    Rel Str 1 Mo % > 0
    1 Mo Forecast Chg > 0
11. Now you should have a table of values looking similar to the one above. Next, you must click on the ‘Calc Pass’ button - one of the options at the bottom of the dialogue box in which you have been typing values. On pressing it, the fifth column of the table, entitled ‘Pass,’ will gradually show numbers in descending order, corresponding to the number of companies listed against the cumulative criteria.
12. Press the ‘save’ button, also situated along the bottom of the dialog box in which you have just created your table.
13. If you now close the dialog box by clicking on the ‘x’ in top right hand corner of this dialog box that you have been creating your table in, you can see behind it the list of companies that represent the result of your search.
14. Next, click on the first icon on tool bar at top of screen, situated below the ‘file’ button. (If you hover the cursor over the right box containing the icon, the words ‘Show REFS Page’ come up on the screen). This will take you to the REFS page on that company.

What The Search Shows

This above search demanded reasonable multiples in relation to earnings growth rates. Demanding a longer historic track record of average earnings growth in order to focus on those companies that had largely bucked the economic downturn tightened this exacting criterion further. In order to build a safety net around these two central criteria, IfG then demanded that at least 100% of earnings had been converted into cash (i.e. cash flow in excess of EPS) to eliminate creative accounting. Positive relative strength over the year and the previous month indicated that the share had been, and was still outperforming the market. Finally, the search demanded that companies had no brokers’ earnings downgrades.

Using the powerful Company REFS search tool in this way is invaluable for investors since out of more than 1700 quoted companies in the database, it produces a small and manageable list of attractive companies ripe for further research. Trying to do the job manually instead would be a daunting task.