Cooling prices bring Slater Zulu stocks back in play

Jim Slater’s Zulu Principle strategy of buying growth stocks at reasonable prices (GARP) has earned a popular following among UK investors. Over the past year Stockopedia’s own Slater-inspired Zulu screen has returned 40.5%, making it one of the best performing of all our Guru Models. With the prices of many growth stocks soaring in 2013, the number of companies qualifying for the screen fell substantially. But with prices now taking a breather in parts of the market, Slater-esque GARP shares are emerging once again.

Jim Slater wrote his legendary investing book The Zulu Principle back in 1992. In it he encouraged investors to research shares thoroughly and look for those with track records of earnings growth and strong cash flow.

Stocks, he said, should also be priced reasonably in the context of their future earnings forecasts. To calculate that, he applied his famous PEG ratio (price-to-earnings-growth), which rates stocks based on the relationship between their forecast P/E and forecast earnings growth rate. The lower the PEG the better.

One of the biggest advocates of this approach is Jim Slater’s son Mark, who has used it to great effect at his MFM Slater Growth Fund. The formula has helped his...