1) The S&P 500 currently trades at a P/B of 2.5 backed by a 14.0% ROE and a dividend yield of 2.0%; EPS are expected to grow at 12.0%. A PM has a GARP (Growth at a Reasonable Price) style of investing. Part of the PM’s investment philosophy is to only selecting stocks with dividends because dividends are a sign of quality and quality helps drive outperformance. Which of the following screens would be most useful to the PM given that the investible universe contains 2500 stocks?
A) A screen that returns 200 stocks using a P/B < 3.0; ROE > 14.0%; ΔEPS > 12.0%; D/P= 0.0%
B) A screen that returns 200 stocks using a P/B < 3.0; ROE > 14.0%; ΔEPS > 12.0%; D/P > 2.0%
C) A screen that returns 200 stocks using a P/B < 3.0; ROE < 14.0%; ΔEPS < 12.0%; D/P < 2.0%
D) A screen that returns 2200 stocks using a P/B < 4.0; ROE < 20.0%; ΔEPS < 20.0%; D/P < 5.0%
E) A screen that returns 2200 stocks using a P/B > 1.0; ROE > 0.0%; ΔEPS > 0.0%; D/P >= 0.0%
2) Which of the following stocks would most likely outperform the S&P 500 (a large cap index) immediately after market bottom and leading out of a recession?
A) Large cap growth stocks with poor balance sheet quality
B) Large cap growth stocks with high balance sheet quality
C) Small cap growth stocks with high balance sheet quality
D) Small cap value stocks with high balance sheet quality
E) Small cap value stocks with poor balance sheet quality