I've only recently started playing with Stockopedia's powerful stock screening functionality, and I thought this would make a good subject area for a short series of articles.
For the last 15 years I have used stock screening systems on other websites to trawl for investment ideas, usually doing something fairly basic, such as looking for shares with a low PER, a decent dividend yield, and net cash.
It's quick and easy to do that, so for anyone not familiar with the process (or maybe familiar, but not used to Stockopedia), I will demonstrate it in this first article, using screen grabs from Stockopedia's screening system.
Step 1: The Screening Centre
This is Stockopedia's home page.
Click where shown.
Step 2: Launch the Screener
Click where shown to create a new Stock Screen (i.e. a stock filter)
Step 3 - Build your own Screen
Create your Screen!
In this Screen I have chosen the following rules to identify value small cap shares:
PER < 10
Dividend Yield > 4%
Net Debt < 0 (i.e. has net cash)
Market Cap between £5m-300m
The trick is to start simple, and take it step by step. A bit of perseverence, with trial & error, pays off.
Then just hit the blue button to see the results.
Step 4: The Results
So here are the results (you might need to increase the zoom on your browser to view clearly):
The results above have given us a shortlist of 12 qualifying shares, which means we can focus our energies on this small number of shares to research, instead of having to research every share in the market.
You can also easily customise how the results are presented, note the different tabs above.
Step 5 - Initial Review
Work through each share in turn, doing a quick initial review to further weed out unattractive shares. Bear in mind that value screens such as this will throw up "value traps", i.e. companies which appear to be cheap, but are cheap for a reason (ie. something is wrong with the underlying business, hence why the shares are cheap).
Every now and again though, you will find a share that is irrationally cheap, and which may be out of fashion now, but which presents good or great investing upside. My big success for 2012 was Trinity Mirror (LON:TNI), which I flagged here as being irrationally cheap at 25p (they are now 109p!).
OK, let's review the results, one by one.
Zhejiang Expressway Co (LON:ZHEH)
I don't touch any Chinese companies, because their entire economy is based on artificial accounting, where bad debts are never crystallised, which rules out all Chinese companies for me as potential investments.
Quercus Publishing (OFEX:QUPP)
This looks potentially interesting, so it goes on my shortlist.
This company is well known to me. It pays out all its earnings in dividends, but I have doubts about the longer term business model. It's time to look at it again, so it can go on the shortlist.
Nationwide Accident Repair Services (LON:NARS)
Another high dividend payer, but they used (in my view) a legal, but highly misleading accounting treatment of their pension deficit, which turned a large liability into a fictitious asset on their balance sheet. So I'm not touching this one until their accounts have been restated under new pension accounting rules.
Densitron Technologies (LON:DSN)
Another one that I've looked at numerous times over the years, and it might be worth another look, so it's going on the shortlist. They own some land in Blackheath too.
A supplier of educational supplies. I seem to recall something went badly wrong in the past, so I'll look into it in more depth. On the shortlist.
Interior Services (LON:ISG)
Construction company that operates on absolutely wafer thin profit margins, therefore quite high risk. I'll check it out again though. On the list.
Randall and Quilter Investment Holdings (LON:RQIH)
Financial sector share, which I don't cover, so not on my shortlist.
Another low margin construction company, so a sector I don't like, and the PER isn't particularly low, nor the divi especially high, so doesn't interest me.
Bloomsbury Publishing (LON:BMY)
Book publishers which keeps cropping up on my stock screens, so this is high on the shortlist.
Not looked at this before, potentially interesting, so it's on the shortlist.
MDM Engineering (LON:MDM)
Overseas resource sector company, so doesn't interest me.
Step 6 - Final Shortlist
We now have a final shortlist of shares to research in detail which is as follows:
Runners-up, which might be worth a look, but I'm initially lukewarm about are:
Having done this initial value stock screen, my next article will use stock screening to explore how the Piotroski method of stock selection works (which the founders of Stockopedia are particularly keen on, and which is given prominence in individual company StockReports on this site).
There are some excellent guides here to help with stock screening, and I recommend this accessible guide to using the "GuruModel" Screeners here.
Also some useful FAQ on stock screening can be found here.
Please feel free to put your questions, comments, discussion, etc, in the comments section below. I will be happy to respond there. Also, if anyone wants to follow up on the stocks mentioned in this article, and post your findings here, then please be my guest. Did this value stock screen produce any useful results, or not? What do you think? How might it be improved?