Works-Putting It All Together
columns I’ve reported the results of my research regarding ‘what’s
working now’ and ‘what isn’t working’ in terms of picking
Today, I’ll show you how to
combine those findings into a screen that pinpoints stocks meeting my
“what’s working now” criteria. However, converting historical research
into a profitable stock picking strategy is tricky business. There are
no guarantees. Only time will tell if this strategy works.
As usual, I’ll use the free and
user friendly Finviz stock screener to demonstrate the process. Get
there by selecting Screener from the Finviz home page (finviz.com).
On Finviz, you use “filters” to define your selection rules. On the
filters bar, click on “All” to see available filters. Then use the
corresponding dropdown menu to pick values for filters that you want to
Start by selecting “USA” on the
Country filter dropdown menu to limit your list to U.S.-based stocks.
Eliminate this step if you want to see foreign stocks as well.
Next we’ll apply two valuation ratios,
Forward P/E and PEG.
The Forward P/E (price to/earnings) ratio
is the current share price divided by next year’s forecast earnings. Use
its dropdown menu to specify “under 15.”
Next, specify “under 1” for PEG, which is
the Forward P/E compared to forecast earnings growth.
My research found that adding these two
valuation restrictions typically increases your gains in strong markets,
but adding them doesn’t necessarily cut your losses in down markets.
We’ll balance that out with our next filter.
We’ll to that by requiring that passing
stocks must be trading above their 200-day moving averages (average
closing price over the last 200 market days). While sticking with stocks
trading above their 200-day MAs doesn’t necessarily boost returns in
strong markets, I’ve found that doing so significantly cuts losses in
down markets. Specify “Price above SMA” on the “200-Day Simple Moving
Average” dropdown window.
Next, we’ll limit our list to low-beta
Beta measures the
historical volatility of a stock compared to the S&P 500. High beta
stocks (values above 1.0) typically outperform in strong markets, but
produce bigger losses in weak markets. Conversely, low beta stocks
underperform high beta stocks in strong markets, but limit losses in
down markets. Savvy investors know that minimizing losses is the key to
making money in the stock market. Thus, specify “under 1” for Beta.
Be a Contrarian
Finally, based in my research that found
that stocks rated “sell” by market analysts outperform “buy” rated
stocks, use the Analyst Recommendation filter and specify “Hold or
Results: Five Stocks
My screen turned up five stocks: Aflac
(AFL), Alliance Holdings (AHGP), Assurant (AIZ), Fidelity & Guaranty
Life (FGL), LGI Homes (LGIH), and Oaktree Capital (OAK).
link to see which stocks the screen is turning up today.
I've found that stocks picked by this method
are best held 6- to 12-months. As is the case for any screen, consider
the results to be research candidates, not a buy list. The more you know
about your stocks, the better your results.