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The Fundamental Filter

Mukul Pal · June 29, 2012

Food and Personal Products – Risk Metrics
.also introducing the Fundamental Filter
Though a fundamental filter adds value to a filtering process for stock selection, fundamental data lacks history. Many of the fundamental data points are released quarterly by the company. There is little data history fundamentalists can use to statistically measure a sector or stock performance relative to a group. For example there are few Indian stocks in the BSE500 that have 30 years of fundamental data. This means that not only is it tough to create a fundamental database with 120 quarters for a universe (say 500 components) but also that fundamental analysis for a group of stocks to a certain degree may remain empirical and static. This is a limitation for us too as we try to create a fundamental filter above our statistical filters for stock selection.
In this latest ALPHA we have studied 33 Food and Personal Products sector components from the Indian BSE 500 universe. We have created fundamental filters as static snapshots for 24 of them (available data). We have taken the following fundamental filter parameters. 1) P/E 2) Dividend Yield 3) P/B 4) P/Revenue and a few other parameters like 5) Market Cap 6) Beta 7) Volatility (90 days).
We combined the ranking filter and fundamental filter. And from the 24 list of stocks we chose the ones which have less than 30 P/E multiple, a positive dividend yield, a positive ROE, a P/B less than 30, Price/Revenue less than 5, Beta lower than 1, 90 day volatility less than 40% and also have a positive Jiseki cycle (Difference of monthly from weekly), pointing higher.
We obtained a list of stocks after the fundamental filter, which we filtered further using the ranking and price trend screens. Most of the fundamental filter stock passed through the ranking and price filter screens. This confirmed that value play components were similar whether one used a statistical filer or fundamental filter. This report carries the running signals for the sector components, Jiseki Cycles and other risk metrics.

Enjoy the latest Alpha.
Fundamental Fiters
This condition filtered 8 out of 24 stocks viz. Godrej, EMAMI, Tata Global, Godfrey Philips, VST Industries, Jyothy Labs, Bajaj Corp and Tata Coffee. It might look surprising but none of ITC, HLL and Gillette made it to this list. This suggests that even fundamentally speaking components of the food and personal product sector diverge on a classification of value play or already strong.

 Download the special FMCG and Personal Product Sector Report


Dr. Ionut Nistor is the co-author of Performance Cycles paper published in Kyoto Economics Journal in March 2009. Ionut is a professor of Corporate Finance at Babes -Bolyai University and a post doctorate fellow at the Kobe University in Japan. He is fluent in Japanese, Romanian and English.
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