Advanced Screening Finding Worthwhile Stocks to Study barnett@zbzoom.net Seminar Number 254 Disclaimer The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting National Association of Investors Corporation ( BI ) or the BetterInvesting Volunteer Advisory Board, its volunteer advisory board ( BIVAB ). The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting or BIVAB. Investors should conduct their own review and analysis of any company of interest before making an investment decision. Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the President of BetterInvesting or the Manager of Volunteer Relations. Outline Definition & Styles Learning to Use Resources Print, offline, online Free, partly free, subscription-based BetterInvesting-ICLUB Prospector & Setting up a screen Special search criteria Viewing the results Pre-defined screens 3 Separating what you do want from what you don t want Panning for gold Searching for artifacts in an archaeological dig Removing rocks from garden soil Selecting companies or stocks that meet our objectives Some Words of Caution Definitions Sector Major subset of overall market, with similar characteristics. S&P recognizes 10 sectors. (e.g.: Health Care, Technology) If only one company passes a Industry Group of companies within a sector, with similar business model. (e.g.: Biotech, Equipment & Supplies, Generics) screen, assume that you would probably not want to buy it! Screening is never a substitute for completing a Stock Selection Guide and doing other research. 5 Company and Stock Screener Database Objective Criteria Individual company and its common stock. Tool for quickly finding companies and stocks with desirable investment characteristics. Information available in a screener. Number of companies and data available vary from screener to screener. Your goal: company and/or stock characteristics. Think about what you want to accomplish! Specific parameters included in your search. Target may be specific number, or industry comparison. 6 BetterInvesting National Convention Atlanta, Georgia 1
Where Do We Start? Decide where your portfolio is weak Current holding underperforming peers Screen for better companies in industry Under-represented sectors and industries Screen for the most promising companies in an industry Rebalance for company size diversification If you don t know where you are going, you aren t likely to get there! Screening Styles Technical Focus on market patterns in stocks Price, Volume, Momentum, Chart patterns Less interest in the company Fundamental Focus on company performance Growth, Quality, Safety, Value, Yield Price is important only if company is attractive 7 8 Approaches to Screening Improve Your Ability to Screen Start at the Bottom Find competitors for a company of interest, then evaluate all Competitors listed in Yahoo, Google, MSN Money, Value Line, hoovers.com Start in the Middle Screen on an industry Fill an industry/sector/size gap in your portfolio Start at the Top No prerequisites, just find some good candidates for further study 9 Study and understand pre-defined screens, criteria selected, and reports Screening software Value Line Other publications Concentrate on screens that suit your style of investing and risk tolerance Are criteria and target values appropriate Are some unnecessary Should others be added 10 Offline Resources BetterInvesting / ICLUB Stock Prospector Buy the software Leverage your annual BI Stock Data Service or StockCentral subscription Download database updates periodically Output can be sent to Toolkit or Stock Analyst Export reports to spreadsheet Your library Value Line Other subscription services 12 BetterInvesting National Convention Atlanta, Georgia 2
Free Online Resources Versatile, requires Internet Explorer Yahoo stock screener Allows sector & industry screening Google screener Fairly basic, limited usefulness No sector & industry screening Morningstar basic screener Limited usefulness Your broker s web site (?) 13 Subscription Services SmartMoney Stock Screener ($58/yr) 2-week free trial Morningstar.com Premium screener ($99/yr) Includes access to company research reports 2-week free trial Value Line Investment Analyzer VL premium subscription ($598/yr online) Includes online access to weekly publication May be available in your library 14 Value Line Selection & Opinion Value Line Summary & Index Income with Worthwhile Total Return Dividend yield >= 4% (above current median of 3%) Projected price appreciation > 15% (above current median of 15%) Average annual total return >= 26% Financial strength >= B Stock price >= $10 15 16 Finding Worthwhile Industries Value Line weekly industry ranking (Summary & Index section) Value Line Industry Rankings Alphabetical Index to Industry Reviews Leads to industry analysis page 17 18 BetterInvesting National Convention Atlanta, Georgia 3
Competitors finance.yahoo.com Competitors google.com/finance Enter ticker, scroll down. Click Competitors Largest companies, ranked by sales Table lists company, three direct competitors and industry averages 19 Enter ticker, scroll down to see list of related companies 20 Prospector BetterInvesting 1 Screen Strong EPS and Revenue growth, consistent management performance EPS R 2 5yr >.95 Consistent EPS growth Hist 10yr EPS Growth >.15 Higher than 15% Hist 10yr Rev Growth >.15 Higher than 15% PTI Rating > 4 Pre Tax Income (scale 0 to 6) Relative Value < 1 Current P/E less than Average P/E ROE Rating > 4 Return on Equity (scale 0 to 6) 22 Prospector BetterInvesting 2 Screen Historical and projected EPS growth, and high total return Hist 5yr EPS Growth >.15 Higher than 15% PE / Hist EPS Growth < 1 P/E Less than EPS Growth Rate Proj 5yr EPS Growth >.15 5 yr. Projected EPS > 15% Total Return >.15 > 15% (estimated by Prospector) Prospector Growth Screen Consistent EPS growth, strong historical and projected EPS and Revenue growth, favorable current price. EPS R 2 5yr >.95 Consistent EPS growth Hist 5yr EPS Growth >.15 Higher than 15% Hist 5yr Rev Growth >.15 Higher than 15% Proj 5yr EPS Growth >.15 Higher than 15% Relative Value < 1 Current P/E less than Average P/E 23 24 BetterInvesting National Convention Atlanta, Georgia 4
Prospector Quality Screen Emphasis is on long-term management performance EPS R 2 5yr >.95 Consistent EPS growth (Scale 0 to 1) Hist 10yr EPS Growth >.1 Greater than 10% PTI Rating > 4 Scale 0 (lowest) to 6 ROE Rating > 4 Scale 0 (lowest) to 6 25 Prospector Safety Screen Price movement less than overall market. Large company with high, steady dividends, EPS and Revenue growth. Beta < 1 Price less volatile than market Capitalization ($M) > 3000 Larger company Div Growth >.15 Higher than 15% EPS R 2 5yr >.95 Consistent EPS growth Hist 10yr EPS Growth >.15 Higher than 15% Hist 10yr Rev Growth >.15 Higher than 15% 26 Prospector Value Screen Emphasis is on growth, consistent management performance and reasonable stock price. EPS R 2 5yr >.95 Consistent EPS growth (Range 0 1) Hist 10yr EPS Growth >.15 Higher than 15% Hist 10yr Rev Growth >.15 Higher than 15% PE / Hist EPS Growth < 1 P/E less than EPS growth rate Rel Value < 1 Current P/E less than Average P/E 27 Prospector ICLUB Growth Screen Quality Rating (by S&P) is on scale of 0 (lowest) to 8. 1 year, 3 year, and 5 year EPS and Revenue growth rates all greater than comparable rates for all companies in the same industry. Field Quality Rating >= 3.4 Hist 5yr EPS Growth Hist 5yr Rev Growth Hist 3yr EPS Growth Hist 3yr Rev Growth Hist 1yr EPS Growth Hist 1yr Rev Growth Criteria > Industry Avg 5yr EPS Growth > Industry Avg 5yr Rev Growth > Industry Avg 3yr EPS Growth > Industry Avg 3yr Rev Growth > Industry Avg 1yr EPS Growth > Industry Avg 1yr Rev Growth 28 Editing a Prospector Screen Check Pro Mode and Display Running Totals Select And / Or Click in Report Item field for list of data items Type in operator ( < <= > >= <> etc.) and value, or rightclick Criteria and Select Operator If appropriate, rightclick Criteria and make selection 30 BetterInvesting National Convention Atlanta, Georgia 5
Comparing against Industry Averages Industry Screening in Prospector To compare an item with its Industry Average, rightclick in Criteria field, then select Industry Average Item. Note that you can also use a multiplier, such as > 2 * or <=.25 *. 31 Select Industry as the report item Right-click in Criteria field and click Select from Industry List 32 Criteria Group Screening in Prospector To include a group of industries or other criteria in screen, you must use OR for all except first criteria in the group. You must also use brackets to combine the group. If you have done this properly, the running total will show only at the end of the group. 33 Set up a Report Create Custom Report Fields Select report items from appropriate categories or predefined reports Click icon to define report Move fields up or down In Select Report Items Window, click Create Items Name the Item and Select the Display Format (Type) Select the data items and build the formula Use assigned item weighting or modify Sample formula for Relative Price (% rank of current price within 52-week high / low range): ((Curr price Low Price) / (High Price Low Price)) * 100 36 BetterInvesting National Convention Atlanta, Georgia 6
Screen Output Results Table Prospector Graph Popups Range of values in each column Right-click on any column heading to sort, or to lock columns to left Double-click on any company name to display a mini-ssg graph Data displays this view, Rank shows comparative weighted graph. Select data to graph, and to show in table Prospector Graph Popups Click to display weighted comparative ranking for all data items, against companies passing this screen. Rank shows this view, Data shows the mini SSG graph. MSN Money Deluxe Stock Screener Free, requires Internet Explorer More than 500 criteria Does not provide for custom display formulas Does not allow multipliers on industry average criteria Provides for export to Excel Use or edit pre-defined screens 13 pre-defined stock screens 10 mutual fund screens Save your own search definitions 41 MSN Money Deluxe Stock Screener Download and install from MSN Money Moneycentral.msn.com Click Stock Research in left pane Click Stock Power Searches in left pane Download and install Deluxe Stock Screener After completing installation Open screener and add to Favorites 42 BetterInvesting National Convention Atlanta, Georgia 7
Getting Started with MSN Screener MSN Screener Report To open a search, click File/Open Select a pre-defined or saved search Screening Criteria All of your saved and pre-defined searches Description of objectives Click on ticker symbol to access MSN company report Results 43 44 Cheapest Stocks of Large, Growing Companies Market Capitalization >= $5B Large-cap company Next Yr Growth Rate >= 20 At least 20% PE Ratio: Current <= 20 P/E no higher than 20 Price / Sales Ratio <= 1.5 Price no higher than 1.5x Sales per Share 46 Great Expectations Smaller stocks with signs of turnaround and good growth potential. PE Ratio: Current PE Ratio: Current <= SP500 Avg PE: Current <= PE Ratio 1 Yr Ago Debt / Equity Ratio <= 0.5 Less than 50% EPS Growth Next Yr >= 20 At least 20% Return on Equity >= 10 At least 10% Price / Sales Ratio <= 1.5 Not more than 1.5* Recent Qtr Surprise >= 0.1 At least 10% Market Capitalization <= $3B Mid-cap or smaller Growth at a Reasonable Price (GARP) Smaller stocks with strong management, moderate risk and good price. Market Capitalization <= $1B Mid-cap or smaller Income per Employee >= Industry Avg High productivity Inventory Turnover >= Industry Avg Good sell-through Debt / Equity Ratio <= 0.5 Less than 50% 5-Yr Revenue Growth >= 20 At least 20% EPS Growth Next 5 Yrs High as possible PE Ratio: Current <= EPS Growth Next 5 Yrs P/E <= EPS Growth BetterInvesting National Convention Atlanta, Georgia 8
Righteous Rockets Fast-growing, profitable companies that appear undervalued but have high stock price appreciation. Market Capitalization >= $50M Eliminate very small companies Return on Equity >= 5 ROE at least 5% Price / Sales Ratio <= 2 Price per share <= 2x sales Debt / Equity Ratio <= 0.5 Moderate debt (less than 50%) Rev Growth Year vs Year >= 20 Strong revenue growth EPS Growth Year vs Year >= 20 Strong Earnings growth Recent Qtr Surprise % >=1 Actual earnings >= estimates % Price Chg Last Yr >= 50 Price up at least 50% last year % Price Chg Last Qtr >= 25 Price up at least 25% last qtr SAPI Slugs Value screen, looking for highest yield and good financial strength S&P Index Membership = S&P 500 Look at all S&P 500 stocks Current Div Yield High As Possible Market Capitalization >= $1B Eliminate smaller stocks Current Ratio >= Industry Avg Curr Ratio higher than avg Debt / Equity Ratio <= Industry Avg Debt/Equity less than avg 50 Contrarian Finding out-of favor stocks in hope that they will be re-discovered. Looks for low P/E stocks with strong financial position. Market Capitalization >= $1B Eliminate small-caps PE Ratio: Current <= SP500 Avg PE: Current P/E below S&P500 avg Current Div Yield High As Possible High dividend yield Current Ratio >= 1.5 Good liquidity Debt / Equity Ratio <=.5 Moderate debt Pre-Tax Margin: 5 yr Avg >= Ind Avg 5 yr PT Margin PT margin above average Return on Equity >= ROE: 5 yr Avg ROE increasing EPS Growth Year vs Year >= SP500 Avg EPS Gr Yr vs Yr EPS growth above average EPS Growth Next Year >= Current Year Growth Rate Projected EPS increasing Summary BI / ICLUB Prospector Leverage your data file subscription Very powerful, and free Subscription-based screeners Excellent, but you have to decide whether they are worth the cost Start by evaluating your portfolio Decide where you need improvement, before designing your screen 52 Make A Difference In Someone s Life If you have benefited from BETTERINVESTING, Please pick up some BETTERINVESTING materials and introduce others to this opportunity. Questions? If you have comments for the instructor, please see the classroom assistant for a comment card. Seminar ID: 254 BetterInvesting National Convention Atlanta, Georgia 9