To isolate stock ideas, John Reese, editor of Validea, assesses the investing criteria of some of the market's best-known investors; here he looks at a stock that scores a 100% rating based on the growth and value strategy of James P. O'Shaughnessy.
Amtrust Financial Services (AFSI) is a holding company; it is a multi-national specialty property and casualty insurer focused on generating consistent underwriting profits.
The company operates in three business segments: small commercial business, specialty program, and personal lines reinsurance.
The first requirement of O'Shaughnessy's Cornerstone Growth Strategy-developed for his Cornerstone mutual funds-is that the company has a market capitalization of at least $150 million.
This will screen out the companies that are too illiquid for most investors, but still include a small growth company. AFSI, with a market cap of $3.1 billion, passes this criterion.
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period.
AFSI, with annual EPS before extraordinary items for the last five years (from earliest to the most recent fiscal year) of $1.56, $1.95, $2.29, $2.34, and $3.67, passes this test.
The Price/Sales ratio should be below 1.5. This value criterion-coupled with the growth criterion-identify growth stocks that are still cheap to buy. AFSI's Price/Sales ratio of 0.94, based on trailing 12-month sales, passes this criterion.
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion.
This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. AFSI, with a relative strength of 71, is in the top 50 and would pass this last criterion.
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