Cornerstone Growth

James O'Shaughnessy's most popular growth stock picking strategy actually includes both Growth, Value and Momentum all in one.

Let’s use the thematic stock screening approach to pick Cornerstone Growth stocks.

Investing Universe

Market Capitalization
The strategy works with any Market Capitalization so use one that fits your risk profile. Stick to Large Caps if you are risk adverse and include Small/Mid Caps if you can stomach higher volatility.

In his latest book "Predicting the Markets of tomorrow" (*), O'Shaughnessy proposes Cornerstone Growth with his Market Leaders (enhanced Large Cap) as Investing Universe.

(*) In this book, O'Shaughnessy makes the case for Value stocks for the next 10-20 years. However, he recommends to include a small portion of Growth stocks in your portfolio. Cornerstone Growth is then proposed with the Market Leaders for lower volatility.

Primary Theme Go back to Top

Cornerstone Growth is a GARP (Growth At Reasonable Price) strategy. A popular parameter used by GARP investors is the PEG ratio. Now, O'Shaughnessy does not use it - probably because his database did not have it - Instead he uses a Value and a Growth criterion:
  •  Price/Sales <1.5

    O'Shaughnessy here capitalizes on his findings that Low Price/Sales is the best value criterion in screening. If your stock screener does not include the Price/Sales but only the more popular Price/Earnings, then you can use Price/Earnings < 20 instead.

  •  1 Year Earning Growth >0

    In "Contrarian Investment Strategies: the next generation", David Dreman shows that Growth rate is of little value, however the direction of Growth is useful and growth >0 is a good thing.

Secondary Theme Go back to Top

In the latest edition of What Works on Wall Street, O'Shaughnessy improved his original strategy by adding extra criteria on the stock's Relative Strength.

    Let’s take 2 stocks, Stock A and Stock B:
    - Stock A goes from 10$ to 15$ in 12 months
    - Stock B goes from 10$ to 20$ then to 15$ in 12 months

    Both stocks have a 50% increase over 1 year and should at first glance have the same 12 months Relative Strength.

    But which stock is best ? Obviously Stock A looks better because it is still on its way up.

Since Cornerstone Growth ranks stocks by 12 months Relative Strength (see below), it won't make the difference between stock A and B and may include some stocks on their way down.

In order to correct this, the new Cornerstone Growth requires recent price momentum as well, that is 3 months and 6 months relative strength higher than average. If your screener does not include those criteria, you may ignore them - the original strategy is also successful -

Ranking and Holding Period Go back to Top

O'Shaughnessy popularized the 12 months Relative Strength as a Ranking parameter in mechanical stock picking strategies.

As for holding period, stocks are held for 1 year which is the maximum reasonable for strategies including Relative Strength. If you're an aggressive investor, you may reduce the holding period and rebalance say quarterly.

Cornerstone Growth Stock Screen Go back to Top

Here is a summary of Cornerstone Growth screening's parameters:

Screening Theme Cornerstone Growth
Investing Universe Any
Primary Theme Price/Sales < 1.5,
1 year EPS Growth > 0
Secondary Theme(s) 3 months Relative Strength > 50
6 months Relative Strength > 50
Ranking 12 months Relative Strength
Number Of Holdings 10 - 50
Holding Period ≤ 1 year


If you have MSN Deluxe Screener installed (Free), you can click on the following links to get the stocks that currently pass the screen: Cornerstone Growth

Finally, O'Shaughnessy recommends to mix your portfolio 50% Cornerstone Growth and 50% Cornerstone Value for diversification. Now this means buying lots of stocks. Check how to mix Cornerstone strategies with Market timing for an alternative solution.

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