The looming trade wars could
spell trouble for stocks of companies doing business overseas. What
should investors do? One solution would be to stick with smaller
U.S.-based companies that don’t do significant
These are called “small-caps,” where “cap” refers to
market-capitalization, which is how most investors measure company
Here’s a stock screen
for finding small-cap candidates using a momentum strategy, which
involves focusing on stocks with already strong price charts and
issued by firms with rapidly growing sales and earnings.
You can run it using
finviz.com’s free screener. Get there by selecting Screener from the
FINVIZ.com homepage (finviz.com).
Start by selecting “All” on the Filters bar to see the entire list
of available filters (screening choices). Then, use each filter’s
dropdown menu to pick a value.
Define Small-Cap Universe
Use the “Country filter” and specify
“USA,” then use the “market-cap” filter to specify “Small.”
small-caps are lightly traded, making them difficult to trade. Use
the “Average Volume” filter to specify “Over 50k,” which requires
passing stocks to trade at least 50,000 shares daily, on average.
use the “Price” filter and specify “Over $15.” Momentum trading
strategies require positive market sentiment, and given the current
hot market, stocks trading under $15 would be considered “out of
Next, we’ll isolate stocks with
earnings momentum, meaning that stock analysts are forecasting
strong future earnings growth.
Require “Over 15%” for forecasted “EPS
Growth this year,” “Over 30%” for expected “EPS Growth next year,”
and “Over 10%” for average annual “EPS Growth next 5 years.”
As a check to assure that the firm is
actually growing in terms of revenues. Use the “Sales Growth Quarter
over Quarter” filter and specify “Over 15%,”
Finally, in terms of EPS momentum,
require that the firm is currently profitable by specifying
“Positive” for “Return on Equity,” which limits your list to
companies that have been profitable over the past 12-months.
Price Chart Momentum
Use the “Performance” filter to specify
“Year-Up” and the “Performance 2” filter to specify “Quarter Up” to
confine your list to stocks that have moved up in price over the
past year, and that strong performance has continued over the last
three months (quarter).
Finally, to rule out formerly strong
stocks that have recently faltered, specify “Price above SMA” using
the “50-Day Simple Moving Average” filter. Stocks meeting this
condition are probably still uptrending.
The downside of momentum strategies is
that the stocks you find are often grossly overvalued. Use the price
to sales (P/S) valuation ratio to rule out such stocks. P/S compares
the current share price to the last 12-months per-share sales. P/S
ratios below four identify reasonably-priced growth stocks. Specify
“Under four” using the “P/S” filter to rule out overpriced stocks.
My screen turned up four small-cap
momentum candidates. Click
here to see which stocks the screen is turning up today.
products distributor DXP Enterprises (DXPE)
industry products distributor MRC Global (MRC)
engineering consultant NV5 Global (NVEE)
• Wind blade
maker TPI Composites (TPIC).
always, consider the stocks turned up by this screen to be research
candidates, not a buy list. The more you know about your stocks, the
better your results.