Who is David Dreman, and what is the Dreman With Est Revisions Screen?
David Dreman, chairman of Dreman Value Management, spent decades documenting how poorly Wall Street forecasts the future — and how reliably investors overreact when reality misses those forecasts. His 1998 book "Contrarian Investment Strategies: The Next Generation" extended his low price-earnings approach with tools for spotting the moment sentiment shifts. The Dreman With Est Revisions Screen is that idea in practice: it starts from the same contrarian value base David Dreman is known for, then adds a catalyst, holding off until analyst earnings estimates have actually begun to climb before it buys.
Contrarian value with a catalyst
The foundation is familiar Dreman territory. Because emotion drags prices away from fair value, he searched among the cheapest 40% of the market by price-earnings ratio for large, financially strong companies the crowd had abandoned. What sets this version apart is what it demands next. Dreman's work on analyst forecasts is unforgiving — studying quarterly estimates back to 1973, he measured an average error near 44%, with fewer than a third of estimates landing within 5% of the actual figure. Forecasts miss often enough that the surprises they produce are what move stocks.
Here is the mechanism the screen is built around. For a cheap, unloved company, a positive earnings surprise is an "event trigger" — it forces investors to reconsider a stock they had dismissed, and the re-rating can be large. For an expensive stock already priced for good news, the same beat changes nothing. Estimate revisions tend to arrive before surprises, so a consensus that is quietly rising month over month is early evidence the story is turning. This screen insists on seeing that evidence first, rather than buying cheapness and hoping.
What the Dreman With Est Revisions Screen looks for
- For New York Stock Exchange listings, market capitalization in the top 30% of the database (a percentile rank of 70 or higher).
- For Amex, Nasdaq (National and SmallCap), and OTC listings, market capitalization in the top 15% of the database (a percentile rank of 85 or higher) — a higher size bar for the less-established venues.
- Total liabilities to total assets at or below the median for the company's industry.
- A price-earnings ratio in the cheapest 40% of the database (a percentile rank of 40 or lower).
- At least four analysts publishing earnings estimates for the current fiscal year, so a revision reflects genuine consensus rather than a single voice.
- A current-year consensus estimate higher than it was one month ago.
- A next-year consensus estimate higher than it was one month ago.
- At least one analyst raising the current-year estimate, and at least one raising the next-year estimate.
- No downward revisions to either the current-year or the next-year estimate.
Why the revisions filter matters
Dreman pointed to evidence that estimate changes move prices much as surprises do: when forecasts are revised up by 5% or more, the stocks tend to outperform, and the effect can persist for as long as a year after the change. Requiring rising estimates with zero cuts, confirmed by more than one analyst, is a way of committing only after the balance of informed opinion has started tilting toward the company — while the stock is still cheap. The four-analyst floor is deliberate: it keeps a lone optimist from passing off a single upgrade as a shift in consensus.
The trade-off: patience versus confirmation
This is where the two Dreman screens part ways. The pure contrarian screen buys cheapness and waits, accepting that you may be early and that some names keep falling before they turn. The revisions version trades a slice of that deep-value entry for confirmation: it will not touch a stock until the numbers show sentiment improving, which keeps you clear of the worst falling knives but also means you rarely buy at the exact bottom. The filters are strict, so the passing list is short and skews toward companies followed by several analysts — small or obscure names drop out entirely. Revisions can also fade as quickly as they appear, so the catalyst wants monitoring rather than a set-and-forget hold.
Sources
Contrarian Investment Strategies: The Next Generation, David Dreman, Simon & Schuster, 1998.
American Association of Individual Investors (AAII) — Stock Investor Pro screen definition.