INVESTMENT STRATEGIES - VALUE INVESTING -Criteria by Dreman:

Criteria by Dreman:

Source: Contrarian Investment Strategies by David Dreman
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• Buy 20 to 30 stocks spread over 15 or more industries.

• Select medium to large sized out of favour companies.

• As a starting point select the bottom 40% according to PER.

• PE, PCF or PBV should be 20% lower than the index. Dividend Yield should be
1% above the index.

• The company should be in a strong financial position with as many positive ratios
as possible. High Current Ratio and low Debt to Equity Ratio. Good profitability
e.g. ROE and pre-tax Profit Margins.

• A higher rate of Earnings Growth over 1 year. EPS Growth should be higher than
the Index.

• Above average and growing Dividend Yield. Low Payout Ratio (DPS/EPS).

• Sell when the PE approaches that of the market or after 2-3 years.


Criteria for Hemscott adaptation (1998) of Dreman:

• Start with the top 120 shares of the FTSE.

• Select the 48 shares with the lowest PE.

• Select only those where Cash Flow exceeds Earnings.

• Of those, take only those with a Dividend Yield of 5% or more.

• Eliminate shares whose Earnings are not expected to grow in the current year.

• Retain companies with Gearing of less than 70%.

2001 amendments:

• Dividend Yield of 4% or more.

• Gearing of less than 100%.

• Dividend Cover of 1.5*.