Hidden Gems
As mentioned in my summary, I wanted to try to build a consistent methodology for picking stocks, aside from random good opportunities I bump into. Using Yahoo! Finance’s stock filtering software, I developed a screen trying to find solid performing companies that had modest valuations. The stock filtering is the first pass to focus on a small group of companies.  Additional research is needed to hopefully have some success separating the companies to be avoided from the good investments.  My initial screening is a bit cursory, using broad measures (e.g. A-F) to characterize some of the fundamentals, combining these with more quantitative measures.  All of these measures are used to create a “short list” for more detailed research, but I prioritized them under the F/U column in terms of their promise.

Filter Criteria

Market capitalization	<=	500m
PEG Ratio	<=	1.0
% Held Insiders	>=	10%
P/E ttm	<=	20
Total Debt/Equity	<=	.50

Please see the glossary page for a description of the terms.  The “Call” column details the progress of my follow up research.  Several of these companies are in insurance.  Generally, I don’t have a very intuitive feel for financial services, but plan to read enough to gain a basic understanding of the drivers of success in insurance.  All completed research summaries will be included in this summary.

The Results (Mid October 2006 to mid June 2007):

Company	Return
Group A	33.5%
Group B	48.1%
Group C	-22.3%
All Groups	33.7%
Dow Jones Average	13.2%
S&P 500	11.6%

Note: the return figures shown are not annualized but the nominal return for the period

Below are the stock returns in detail for Group A:

Date	Company	Ticker	Bought	Current	Return
Oct-06	Urologix	ULGX	2.31	2.25	-2.6%
Oct-06	E-Z-EM	EZEM	15.68	16.82	7.3%
Oct-06	Leather Factory	TLF	6.6	7.17	8.6%
Oct-06	American Safety Insurance	ASI	18.49	22	19.0%
Oct-06	AmeriSafe	AMSF	11.86	17.68	49.1%
Oct-06	Sun Hydraulics	SNHY	20.99	44.59	112.4%
Oct-06	Seabright Insurance	SEAB	14.27	17.4	21.9%
Oct-06	Bristol West Holding	BRW	14.64	22.29	52.3%
	Group A				33.5%

Pretty cool, except my researched stalled a bit after EZEM and ULGX, so only bought those two. I researched TLF pretty hard but had some reservations so passed. Four of the others were insurance related (BRW, SEAB, ASI, AMSF), and I procrastinated on doing my reading on those companies because I did not find insurance very interesting. Hopefully another lesson learned. I read some analyst reports on SNHY and do not recall why my researched stalled on them, but whatever reason it was, I hope it was a very good one.

Group B Detail:

Date	Company	Ticker	Bought	Current	Return
Oct-06	Cybex International	CYB	7.46	6.78	-9.1%
Oct-06	Symbion	SMBI	17.95	21.88	21.9%
Oct-06	GP Strategies	GPX	7.65	10.97	43.4%
Oct-06	Natl Medical Health Card	NMHC	11.74	27.74	136.3%
	Group B				48.1%

I did some cursory research of each of these, but seeing as I failed to get through the "A" group, this group did not get much attention. Another lesson learned, perhaps.

Finally, Group C (actually, a single stock):

Date	Company	Ticker	Bought	Current	Return
Oct-06	America's Car Mart	CRMT	16.69	12.96	-22.3%

I actually researched this company pretty hard, just because it was a business I thought I could understand: selling & financing used cars in small towns to people on very thin credit. They seemed to have a model that worked but it seemed very dependent on finding good managers who knew the people. As they sought to expand into other states and bigger cities, I feared a stumble, so held off.

In summary, my screening methodology and instincts seem to generate pretty good results. These are only a few data points, over a fairly short time period, but it is encouraging. Unless I end up in investment research, I expect this to stay a hobby. Hopefully it will be a profitable one.