Over the years, AAII has studied the works of many successful investors. Our goal has been to learn from the winning strategies and techniques of investment legends, modern day investment professionals with a proven record of long-term success and even prominent academic research on investing. The desire has been to use this knowledge to create screening strategies that investors can use to identify interesting investment candidates.
Screening is the application of quantitative criteria to a broad universe of stocks in order to narrow the list down to a few companies. It allows you to focus your attention on a smaller but more promising group of stocks to conduct further research.
There are around 40 stock screening strategies on AAII.com derived from the works of successful gurus, along with 20 screens based upon academic research or investment factors that help you identify investment ideas. The screens range from deep value approaches following the philosophy of investment gurus such as Warren Buffett to earnings and price momentum strategies championed by Willliam O’Neil.
Stocks That Pass the Most Screens
In looking at the stocks that pass the screens, an interesting question arises: Is a stock that passes multiple complete screening approaches more attractive than another stock that just passes one screening approach? Possibly, if the screening approaches that a stock passes are based upon solid financial principles and are diverse enough to capture unique yet desirable qualities.
There are 1,084 stocks that currently pass at least one of the 60 screening strategies presented on AAII.com, but there are only 16 stocks passing four or more screens, and they are the stocks that are presented below.
The stocks are ranked by how close their price relates to their 52-week high price. With the dramatic market ups and downs over the last few weeks, some companies had bigger declines and these stocks would be toward the bottom of the table. For example, Fidelity National Financial’s
For the most part, the stocks currently passing multiple screens are meeting the criteria for value or growth approaches that identify companies with low prices relative to company financial measures such as assets or earnings, or companies exhibiting strong, consistent and prolonged growth. For example, the Buffett Hagstrom screen combines price relative to free cash flow, historical earnings growth, industry-beating margins and return on equity. All these elements are well known and well used by value investors. The approach identifies “excellent” businesses based on the prospects for the industry and the ability of management to capitalize on opportunities for the ultimate benefit of shareholders. When combined, the characteristics help to indicate if a candidate merits further analysis.
The table lists two price-earnings ratio calculations: one based upon trailing earnings per share, and one that is determined using forward earnings expected for the current year. The price-earnings ratio is a basic valuation measure, but it can be more difficult to use during economic turning points. If you see a forward price-earnings ratio that is lower than the trailing ratio, it indicates that analysts are expecting future earnings to be higher.
The market capitalization (number of shares outstanding times the share price) is a common way to measure the size of a firm. With a market cap of $95.2 billion, Lowe’s Companies (LOW) is the largest company to pass four or more screens. Lowe’s may benefit from a shift in consumer spending from travel and live events to the home. As a result of the coronavirus pandemic, the company could see near-term benefits as households invest more in their homes, whether improving the backyard, finishing a basement or remodeling a bathroom. Analysts have increased current earnings estimates by 2.4% over the last month. That explains why the forward price-earnings ratio of 19.3 is below the trailing price-earnings ratio of 21.6.
While you cannot automatically consider a group of consensus stocks to be a diversified portfolio, they may present a good starting point for constructing your personal portfolio. Optimally, the group of screening approaches a stock passes is diverse enough to capture unique, yet desirable qualities.
16 All-Star Stocks Passing the Most Screens
All-Star Stocks: Stocks Passing the Most Screens (Ranked by Price as a % of 52-Week High)
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