I wrote recently about a service called Quant Investing and their Screener service which has introduced a way of screening for low liquidity stocks which I have written about in the past. Well a quick update for you as I have got around to trying it out and one of the first things I decided to do was to run their version of a low liquidity screen which you can read about here.
In essence it screens for companies by defining liquidity as "adjusted profits to yearly trading value and not as the number of yearly shares traded divided by the company’s total shares outstanding." Thus qualifiers therefore have a low level of turnover (value of annual volume traded in shares) in relation to their profitability. I screened for the top 20% in the UK which gave a list of just over 100 names.
The list does include some recent issues like AA and Shoe Zone so probably short history factor there. It also includes quite a few AIM stocks which I guess is perhaps not a surprise. Of the AIM names some of the quality names that I like such as James Halstead (JHD) and Nichols (NICL) are included. Interestingly for me it also includes a few other stocks l have written up like Computacenter (CCC) and PZ Cuzzons (PZC) and two of the more recent ones like Hill & Smith (HILS) and Connect Group (CNCT).
Otherwise the biggest surprise for me was to find BHP Billiton (BLT) on the list. Trying to rationalise it I guess investors have lost interest in miners recently, hence low turnover in the shares and they probably still have historically high profitability. That may however be under pressure going forward and it has certainly seen some down grades recently on the back of weaker commodity prices. However, as it is coming up on some of my other screens and it offers a reasonably well covered near 5% yield, it might be worth a look on a contrarian basis as a three year under performer.
Food for thought and other than that it is a list that might provide the basis for some further research as just because a stock is on this list doesn't mean it will necessarily outperform. However the research suggests that stocks as a whole with this type of characteristic have tended to outperform.
If it is of interest you can access the full list in the file below, cheers.