What are the key attributes of attractive companies and how do you interpret numerous factors to get an overall picture of what makes a good company. Let’s look at how to screen for stocks that could form your base list of stocks to review in detail. Here is the process I use to find winning stocks.
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It is always important to let several fundamental measures build the picture. Never rely on just one.
- Understand what you are looking for. For example:
- Earnings per Share (EPS)
- Price Earnings Ratio (P/E)
- Capitalization: Total Value of a Company’s outstanding Shares
- Find a great Stock Screener that allows you to filter on the criteria you want. Here is an in-depth review of 11 of the Best Stock Screeners
- Use your selection criteria to narrow down the 7000+ stocks on the U.S. Stock Markets.
- From your Screened List you can then review in detail further information about the company.
- Learn a little about the industry of the stocks you are interested in.
- Perform detailed Technical Analysis to assess when to buy.
- Work out your Entry and Exit Strategy.
- Wait for the right time and buy.
Screening for Growth Stocks
A growth stock, is a stock that you expect to earn your profit from the growth of the stock price, rather than dividends.
- Close Price >= $5
- This is the share price of the stock at last market close. This can be used filter out penny stocks, there is a reason share price of a stock can be so small, and it is not usually a good reason, stocks decline in price, because the companies behind the stock are usually run poorly or are close to bankruptcy. This is a risk you do not want to take.
- Market Capitalization >= $500 Million
- This is the worth of all the outstanding stocks added together. Essentially the worth of the company. You could use a figure of $200 Million, or $2 Billion if you wish, this depends on what you personally think constitutes a solid business size.
- EPS % Change Last Quarter >= 25%
- This is the % increase of the EPS for the last three months. I set this a 25%, to show us stocks performing strongly. You may tweak as appropriate.
- EPS % Growth 1 Year >= 40%.
- Combined with the previous criteria, this helps us separate the men from the boys. This means over the last year the earnings have increased over 40%. Never a bad thing.
- Projected EPS Change Current Quarter >= 20%.
- This means the companies estimated Earnings for this upcoming quarter. In the current climate you could increase this to 30% if you wish if you feel we are in a strong growth cycle, but 20% would still be healthy.
Your List of Great Companies to Invest In
After you run the screen you will have a list of potential stocks.
- The list changes over time sometimes with many companies or fewer, go back and play with your settings to get a manageable list.
- What you are left with is companies which are a good size, relatively stable, with strong revenue and profitability.
You may not have heard of these companies they may still be relatively small, but they may hold the key to long-term strong price appreciation.