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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: 13.8%
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: 13.4%
Richard Driehaus Screen

This screen is based on the momentum-focused approach of Richard Driehaus, a mutual fund guru who was named to Barron’s “All-Century” team of the 25 most influential and powerful mutual fund managers in 2000. It focuses on companies with momentum in earnings and prices, particularly small- to mid-cap companies with strong, sustained earnings growth that have had “significant” earnings surprises. At the core of his strategy are earnings surprises. Companies with positive earnings surprises are buys and negatives are sells. It also values surprises in which the range or standard deviation of estimates is tighter, which has a more significant impact on subsequent returns. This strategy looks for companies with positive price momentum over the last four weeks and also considers how stocks do on a relative basis versus the S&P 500. Driehaus prefer small to mid cap stocks. The investor may also wish to monitor liquidity in terms of trading volume. more »

Momentum Investing
6 Month Return: 13.2%
Naked Trader-esque Screen

This is a mixed-criteria GARP screen inspired by the enjoyable best-seller by Robbie Burns, "The Naked Trader: How Anyone Can Make Money Trading Shares". His approach is primarily value / fundamentals driven: "My investment strategy has always been quite simple: find excellent companies and hold them until the value comes out". While he does appear to use a fair amount of technical analysis in order to time the entry, he appears sceptical about pure TA: "I strongly believe charts are very important to look at.. but I also believe it is simply crazy to buy and sell shares on the basis of looking at a chart and nothing else at all". more »

Growth Investing
6 Month Return: 13.0%
Free Cash Flow Cows Screen

This screen is inspired by a similar screen devised and backtested here by the Old School Value blog for the US market. It looks for stable, cash rich companies growing their FCF, yet selling at a cheap multiple to FCF. Free cash flow is defined as cash from operations minus capital expenditure. The idea is that FCF is the ultimate driver of intrinsic value - the more FCF a company can generate and reduce debt, the higher the intrinsic value of the company becomes. more »

Bargain Stocks
6 Month Return: 10.7%
Earnings Downgrade Momentum Screen

This is a strategy that aims to zero in on stocks where brokers are downgrading their earnings estimates.  In theory, this is a short-selling strategy! The idea is that brokers have a behavioural bias which anchors their new estimates too closely to their previous estimates thus making a high likelihood that earnings estimates will continue to fall in future. Continuing earnings estimate downgrades can be negative for stock prices.   However, research has shown that investing on the basis of broker recommendations does not generally work because of the bias in those recommendations. Research suggests that focusing on positive recent changes in broker recommendations may be more fruitful, particularly in combination with other signals, although this doesn't appear to be true for downgrades. You can read more here.  more »

Short Selling
6 Month Return: 10.2%
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: 9.5%
Benjamin Graham Net Nets Screen

This strategy is one of Ben Graham's most famous bargain stock strategies aiming to find stocks trading for less than their liquidation value.  The idea is to find stocks  trading at such a cheap price that you could buy the whole company and sell off all the assets at a profit with near minimal risk.    It is a simplistic screen which just looks for stocks where the market cap is less than the so called 'Net Net Working Capital'  (defined as  Cash and short-term investments + (75% of accounts receivable) + (50% of inventory) - All Liabilities).  The formula is very conservative in estimating the value of inventory and receivables due to the likelihood that not all will be collectible in a firesale. About such stocks Graham wrote: ‘ No proprietor or majority holder would think of selling what he owned at so ridiculously low a figure…In various ways practically all these bargain issues turned out to be profitable and the average annual result proved much more remunerative than most other investments’. This is not a strategy for the faint-hearted due to the high risk companies that qualify. Graham sought safety from individual bankruptcy risk by diversifying his portfolio with a large numbers of companies – he suggested 30. more »

Bargain Stocks
6 Month Return: 8.7%
Greenblatt's Magic Formula

This screen implements the Magic Formula value investing strategy pioneered by hedge fund manager, Joel Greenblatt. It is based on buying 20-30 "good, cheap companies" defined as having the best available combined MFI ranking in terms of Earnings Yield and a Return on Capital.  Greenblatt argues that return on capital is the best determinant of whether a business is a good one or not (companies that can earn a high ROC over time generally have a special advantage that keeps competition from destroying it, such as a unique business model). Earnings yield is his metric for 'cheapness'. Greenblatt believes that stock prices of a firm can experience “wild” swings even as the value of the company stays relatively constant giving investors opportunities to buy low and sell high. more »

Quality Investing
6 Month Return: 8.4%
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: 8.1%
R&D Breakthroughs Screen

This screen seeks to identify research-led businesses that are investing significantly in future development in order to try to identify their potential future growth before the market does.  As Jack Hough notes, "When a company announces a breakthrough drug or a sudden advance in computer-chip technology, its shares often soar right away. Imagine being able to foresee which companies are due for such lucrative discoveries". Specifcially, the screen looks for R&D investment levels that are increasing and which equal at least 5% of annual sales and 5% of total assets. It also looks for Price to R&D ratios that are below 20x. more »

Quality Investing
6 Month Return: 8.0%
Large Cap Dividend Attraction Screen

This is a large-cap dividend focused screen, loosely based on the "Dividend Attraction" screen discussed by Kevin Matras in his useful book, "Finding Number 1 Stocks". It focuses on the added dividend security to be found amongst larger-cap stocks in a credit-constrained environment. In Matras' version, however, the primary filter is the Zacks Rank (a proprietary metric analysing analyst forecasts for i) Agreement, ii) Magnitude, iii) Upside Potential, Surprise). However, this version just uses the 3 month change in analyst forecasts instead. The other elements are: i) A market capitalisation above £1.5 bn, ii) Positive 5 Year Dividend growth, iii) Above Average Return on Equity, iv) Above Average EPS Growth and v) Price to Operating Cashflow. more »

Income Investing
6 Month Return: 8.0%
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: 7.2%
Earnings Upgrade Momentum Screen

A momentum screen based on buying stocks with rising analyst earnings estimate revisions in light of empirical findings that stocks with their estimates revised often outperform the market over at least the next 12 months. Although investing on the basis of broker recommendations alone does not appear to be a successful strategy because of the bias in those recommendations, research suggests that focusing on recent changes in broker recommendations is more fruitful, particularly in combination with other signals. You can read more here.  more »

Momentum Investing
6 Month Return: 6.7%
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: 6.0%
Earnings Surprise Screen

When companies report earnings significantly higher than analyst's earnings estimates the result is known as an 'earning's suprise'.  While earnings surprises often create spikes in the share price on the day of the announcement, they have also been observed to trigger longer term increases in the share price.  This effect is known as the  "Post Earnings Announcement Drift" and can last for several weeks or even months after the announcement date.  The effect is generally attributed to the fact that analysts are slow to revise their forecasts and the market does not fully react to the information about future growth conveyed by the earnings surprises.  The idea behind the strategy is to buy stocks that report earnings surprises and hold them over this time period. Positive surprises often happen at the beginning of a turnaround, or a new growth cycle where sales start to accelerate beyond the historical rates, “surprising” the analyst community.  You can read more here. more »

Momentum Investing
6 Month Return: 4.4%
Peter Lynch Growth Screen

This is a 'fast growers' screen which looks for consistently profitable, relatively unknown, low-debt, reasonably priced stocks with high, but not excessive, growth. Mr. Lynch developed his investment philosophy at Fidelity, and gained his considerable fame managing Fidelity's Magellan Fund. His selection approach is strictly a bottom-up "buy what you know" one. He suggested focusing on companies familiar to the investor, applying fundamental analysis which emphasizes a thorough understanding of the company, its prospects, its competitive environment, and whether the stock can be purchased at a reasonable price.  It’s frankly impossible to come up with a screen that exactly replicates Lynch’s multi-faceted investing strategy. Nevertheless, the following approach seeks to emulate some of the key elements of his search for “fast growers”. You can read more here. more »

Growth Investing
6 Month Return: 3.7%
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: 3.1%
Trading below Cash Screen

This screen is loosely based on the "Cash Index" approach outlined by James Altucher in his book, "Trade Like Warren Buffett". He suggests a multi-pronged approach to analysing potential bargain/arbitrage stocks in times of market distress (post 2001 bubble / Iraq War). First of all, he suggests that it's important to recognise that these stocks are likely to be trading for less than cash for a reason, namely the mar­ket thinks they will eventually declare bankruptcy. Some of the possible risks include: i) Inaccurate reflection of "cash on hand" in their books (leases, severance packages, etc), ii) Business model destined to fail, iii) Management with no incentive to return value to shareholders. To minimise risk of buying a turkey, Altucher looks for eight factors: i) Market cap below cash, ii) Very low leverage, iii) Enough cash headroom to cover the current annual burn-rate, and iv) some stability in revenues and earnings. In addition to these easily-screenable criteria, he suggested looking out for more qualitative factors: v) A reasonable belief that the sell-off in the stock was partly irrational, vi) Favorable arbitrage analysis - , i) Insider buying and viii) Institutional ownership.  more »

Bargain Stocks
6 Month Return: -1.6%
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: -2.9%
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