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Screening Strategies

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52 Week High Momentum Screen

An investing screen based on buying stocks that are close to their 52 week high (and/or selling stocks that are close to their 52 week lows). Similar to other forms of momentum investing, this seems to work because investors tend to under-react to positive (or negative) information about those kinds of stocks. Researchers surmise that investors use the 52- week high as an “anchor” against which they value stocks, thus they tend to be reluctant to buy a stock as it nears this point regardless of new positive information. As a result, investors underreact when stock prices approach the 52-week high, and consequently, contrary to most investors' expectations, stocks near their 52-week highs tend to be systematically undervalued.  Finally, when information prevails and the 52 week high is broken, the market “wakes up” and prices see excess gains.   You can read more here. more »

Momentum Investing
6 Month Return: -1.4%
Cash Accruals Screen

This screen is loosely based on the influential work of Richard Sloan from the University of Michigan, published in 1996 documenting what is referred to as the “accrual anomaly”. A pound of earnings can be comprised of assumed non-cash earnings called “accruals.” His landmark 1996 paper revealed that shares of companies with small or negative accruals vastly outperform (+10%) those of companies with large ones His paper found that investors focus too heavily on earnings and not on cash generation. They value the earnings of a high accrual company just as highly as the same earnings of a low accrual company, even though the high accrual company’s earnings are more likely to reverse in future years. When future earnings reverse, investors are “surprised” and sell off the stock causing the stock price to decline. Similarly, when a low accrual company’s earnings accelerate in future years, they are surprised in a good way. more »

Quality Investing
6 Month Return: -1.8%
James O'Shaugnessy's Cornerstone Value

Cornerstone Value is a five criteria large-cap dividend yield-focused value screen outlined in James O'Shaughnessy’s seminal 1996 book What Works on Wall Street. His work showed that a large-caps stock portfolio with above average stock liquidity and cash flow per share which was ranked for high dividend yields performed best over the long term. Accordiing to his work, this value strategy outperformed the market producing an annual compound return of 15% from 1954 to 1996, compared to 8.3% for the S&P 500 Index (his Cornerstone Growth Strategy achieved 18% but with greater volatility). more »

Value Investing
6 Month Return: -2.0%
James O'Shaugnessy Cornerstone Growth

The Cornerstone Growth Screen is a growth screen which combines relative strength, earnings growth and a price-to-sales value measure, as outlined in the third edition of James O'Shaughnessy’s seminal 1996 book What Works on Wall Street. According to his book, O'Shaughnessy found that his growth strategy outperformed the market producing an annual compound return of 18% from 1954 to 1996, compared to 8.3% for the S&P 500 Index (this beat his Cornerstone Value strategy which achieved 15%, although it was more volatile). more »

Growth Investing
6 Month Return: -2.3%
Buffettology-esque Sustainable Growth Screen

This screen seeks to replicate the approach of Warren Buffett,   arguably the most successful living investor - based on the summary/interpretation by Mary Buffett (a former daughter-in-law) in the best-selling book, "The New Buffettology".  In Chapter 13, Mary Buffett outlines a number of screening-type criteria entitled "Warren's Checklist for Potential Investments: His Ten Points of Light", which we summarise out below. Not all of these points are quantitative in nature, admittedly, but there's certainly the beginnings of a good Buffett screen, and one with a slightly different emphasis to that of the Buffett-Hagstrom screen. This version uses the Sustainable Growth method to calculate the "expected return". more »

Quality Investing
6 Month Return: -2.8%
Jim Slater ZULU Principle Screen

The Zulu Principle is an investment strategy made famous by Jim Slater in the book of the same name. It is a GARP investing style which uses a combination of growth and value, looking for shares where brokers are forecasting high earnings growth, but which are currently valued at a price that is low relative to their forecast earnings. The strategy aims to capture growth companies at a reasonable price by using the PEG Ratio. Slater uses forecast earnings to calculate both PER and the EPS Growth Rate. As Slater puts it: "I have always been attracted to growth shares, particularly those that can be purchased at what I perceive to be a discount to their proper value”.  more »

Growth Investing
6 Month Return: -2.9%
Piotroski F-Score Price to Earnings Value Screen

The Piotroski F-Score screen aims to identify deep bargain-bucket stocks that are in recovery.  Josef Piotroski, a finance professor, recognized that, while it has long been shown that bargain stocks have strong collective returns, there is very wide individual variability. What he wondered was whether it was possible to weed out the poor performers and identify the winners in advance. He therefore sought to develop a simple accounting-based scoring system for evaluating a stock’s financial strength. Piotroski's F-Score looks at value stocks and tests nine variables from a company’s financial statements. One point is awarded for each test that a stock passes. Piotroski regards any stocks that scored eight or nine points as being the strongest. In this version of the screen, Price to Earnings, rather than Price to Book, is used as the measure of "cheapness".  more »

Value Investing
6 Month Return: -3.4%
Piotroski High F-Score Screen

Josef Piotroski came up with a simple nine criteria scoring system to help identify bargain stocks in recovery.  It is known as the F-Score and is used extensively throughout Stockopedia on Stock Reports and in screens as a measure of an improving financial health trend.  But while his now famous original strategy (which we have modelled here) focused on applying the F-Score filter to only the cheapest stocks in the market, other analysts have discovered that the highest F-Scoring companies in the market in aggregate also outperform.   We have filtered the market in this strategy to just highlight the companies showing a Piotroski F-Score of 9. more »

Quality Investing
6 Month Return: -3.5%
Neglected Firms Screen

This screen involves seeking out stocks that are covered by few, if any, financial analysts and attempting to discover sources of value that may have been overlooked by other investors. Neglected firms tend to be small, low-profile companies that have not received much media attention. Areas of the market that attract media attention, public interest or sophisticated institutional followings are more likely to be properly priced than areas that are off the beaten track. more »

Value Investing
6 Month Return: -3.5%
Martin Zweig Growth Screen

A Growth at a Reasonable price (GARP) investing strategy that uses both fundamental analysis and market timing. It focuses on strong growth in earnings and sales, a reasonable price-earnings ratio given the company's growth rate, insider support, and relatively strong price action. Martin E. Zweig was a reputed US growth money manager back in the 1990’s as well as an investment newsletter writer. He was named stock picker of the year 2 times in a row and wrote a book titled “Winning on Wall Street”, which outlines his investing strategy. Zweig is essentially a growth investor but with a conservative streak, focusing on selecting growth stocks with certain value characteristics, through a system that uses both fundamental analysis and market timing. more »

Growth Investing
6 Month Return: -3.5%
Walter Schloss 'New Lows' Screen

A value investing screen based on Walter Schloss's dedicated focus on stocks that are hitting new lows and those trading at a price lower than their Book Value per Share.  Schloss summarized his own approach as being: “We want to buy cheap stocks based on a small premium over book value, usually a depressed market price, a record that goes back at least 20 years…and one that doesn’t have much debt. You can read more here. more »

Bargain Stocks
6 Month Return: -3.8%
William O'Neil CAN-SLIM-esque screen

This unofficial screen is inspired by the writings of William O'Neil - founder of Investors Business Daily. It uses a 7 pronged formula that finds stocks with fast earnings growth and share price momentum.  Studies by AAII in the USA have proven similar rules to be one of the most successful methods over the last decade. The so called 'CANSLIM' acronym is a registered trademark of Investors Business Daily, and the approach has become famous and well followed. The mnemonic stands for the first letter of each of the following: Current Earnings - current interim earnings strongly accelerating vs the prior year; Annual Earnings - annual earnings increases in recent years; New Highs, New Products, New Management - some kind of catalyst; Supply & Demand - small supply of shares and strong demand for the company's stock; Leaders over Laggards -  choose the best companies in each sector; Institutional Support - but avoid stocks that are over-owned; Market - only buy when the broad market is in a bull phase. more »

Growth Investing
6 Month Return: -4.5%
Bold Earnings Revisions Screen

This screen seeks to identify stocks that have experienced recent revisions in the earnings estimates. Specifically, it looks for stocks that have seen one analyst revision in the last week/month, to try to see if there is an analyst moving away from the consensus. This follows research that showed "bold" estimates like this have a significant impact on share price performance. Note: that this screen on its own isn't able to only pull back revisions that are "bold" (moving away from the consensus), as opposed to revisions that are "herding" (moving closer to the consensus). This will need to be done by analysing the actual list of companies produced in more detail. more »

Momentum Investing
6 Month Return: -4.6%
Quality Income Screen

In 2012, the team at Soc Gen introduced their so called ‘SG Quality Income Index’ - an index that aims to track stocks with strong fundamentals and good yields. Many in the market now appreciate that both higher ‘quality’ stocks and higher yielding stocks tend to outperform, but according to the research note, stocks that share both qualities put together standout total returns that have averaged 11.6% per year since 1990, more than doubling the return of the global equity markets at a significantly reduced volatility. But what is more striking is the return of the portfolio from when the market topped in 2000 to 2012 - a sideways market and a genuinely miserable time for all. While the total return of stock markets has actually been negative in that time period, the Quality Income index almost tripled. Read the full article. more »

Income Investing
6 Month Return: -4.7%
Warren Buffett - Hagstrom Screen

Warren Buffett is the greatest living investor whose investing style was best modelled in the books by Robert Hagstrom.  Buffett's approach is a highly fundamentals-focused one blending both Graham-esque value investing principles and an emphasis on the calibre of the business franchise. In essence, it looks for simple, understandable companies that have a monopoly position and pricing power (for example, through strong brand recognition), so as to ensure consistent profits and a good return on equity, but where there is significant unrecognized value.   Our quantitative model here cannot aim to replicate the qualitative work and understanding that Buffett brings to stock selection, but aims to highlight the kinds of companies showing the longer term fundamental strength and cashflow generation that attracts him. more »

6 Month Return: -4.7%
Charles Kirkpatrick Growth Screen

Kirkpatrick’s Growth Screen combines quantitative filters for relative price strength and relative reported earnings growth, and then involves point & figure chart analysis to determine whether the stock is in an upward trend. Kirkpatrick also looks for growth companies with market capitalizations of at least $1 billion and share prices of at least $10. Kirkpatrick uses point & figure charts to help in the buy and sell decision process. He only buys stocks for his Growth Model when they are in an upward trend, as indicated by two higher highs in a three-point reversal point & figure chart. You can read more here. more »

Growth Investing
6 Month Return: -5.2%
John Templeton Bargain Screen

John Templeton believed that there were no simple formulae to finding good stocks, with over 100 factors that can be considered at times. However, Templeton did have four criteria which he considered particularly important: i) P/E ratio, ii) Operating profit margins, iii) Liquidating value and iv) Consistency of growth rates. Templeton also looked for any potential catalysts (new markets and products, potential M&A, as well as industry changes). more »

Value Investing
6 Month Return: -5.8%
Altman Z-Score Screen

This is a short-selling strategy based on the Altman Z-score which combines five weighted business ratios to estimate the likelihood of financial distress. The idea is that, if the Altman Z-Score is close to or below 3, it is wise to do some serious due diligence. The Z-score results usually have the following "Zones" of interpretation: any Z-Score above 2.99 is considered to be a safe company. Anything below 1.80 is in the distress zone, with a strong likelihood of the company going bankrupt within the next two years, while anything between 1.80 and 2.99 is in a "grey zone". In line with Altman's result, this work is based on last annual reported results and does not factor any interim updates. According to the research, the Altman score does experience false positives (i.e. classifying the firm as bankrupt when it does not go bankrupt) in approximately 15-20% of cases. more »

Short Selling
6 Month Return: -5.9%
Benjamin Graham Defensive Investor Screen

A demanding intrinsic value-based screen designed for less experienced investors which focuses on “important” companies with long histories of profitable operations and strong financial condition. Graham felt defensive investors should confine their holdings to the shares of large, prominent, and conservatively financed companies with long histories of profitable operations. By this, he meant a firm of substantial size and with a leading position in its respective industry. Additionally, Graham sought companies with: 1) Strong financial position (based on the current ratio & debt to working capital). 2) 20 years of uninterrupted dividends 3) No negative earnings in the last 10 years & a 10-year annual earnings growth rate of at least 3% 4) A reasonable price-earnings ratio & a moderately low ratio of price to assets more »

Bargain Stocks
6 Month Return: -6.3%
Beneish M-Score Screen

This is a short-selling strategy based on Professor Beneish's M-Score - this is a mathematical model that uses eight financial ratios from the company's financial statements to assess the degree to which the earnings may have been manipulated. It is similar to the Altman Z-Score, but it is focused on detecting earnings manipulation rather than bankruptcy. The research suggests that a score greater than -1.78 indicates a strong likelihood of a firm being a manipulator. Here is the link to the original Detection of Earnings Manipulation paper as well as the subsequent paper - The Relation between Accruals and Earnings Manipulation. The screen below highlights companies that have had a M-score above the threshold for two years in a row in order to reduce the likelihood that a given year's result is coincidental or a rogue data input error. more »

Short Selling
6 Month Return: -6.6%
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