How Investors Screen for Stocks

Hey, mooers!

Sarge emphasized that stock screening is very important for discovering potential new opportunities and diversifying your portfolio. It narrows down options from over 18,000 stocks and complements fundamental and technical analysis by revealing possibly overlooked stocks.

🏢 Sector and Industry

Start by focusing on sectors or industries that interest you. For example, if you're into gold miners, look for under-the-radar stocks. Sarge manages a portfolio of stocks under $10 and uses a screener to quickly eliminate those that don't meet this criterion. Further refine your search by market cap or price.

Use the 52-week high/low strategy to identify trends. Check the highest and lowest prices a stock has traded at over the past year. Sarge discusses using 50-day and 200-day SMAs (Simple Moving Average) for medium to long-term trends, and 9-day and 21-day EMAs (Exponential Moving Average) for short-term trading. Evaluate performance over the past month, three months, and twelve months to see if the stock is on trend.

🐶 Dogs of the Dow

This theory suggests that the five worst-performing stocks in the DJIA (Dow Jones Industrial Average) in one year will improve the next year. While not always accurate, Sarge said it's worth monitoring.

Sarge prefers trading large quantities of shares to enable options trading. You may calculate your investable capital after expenses and target stocks priced so you can buy relatively larger quantities. This strategy allows for selling covered calls to potentially generate additional revenue.

Focus on operating and free cash flows, and forward-looking earnings rather than trailing earnings. Strong balance sheets and improved cash flows are positive indicators. Avoid relying solely on sales-based valuations, as high-growth stocks without positive cash flows can lose value in downturns.

The current and quick ratios can provide forward-looking insights into a company's financial health. The current ratio includes inventories and compares current assets to current liabilities, giving an idea of the firm's short-term health. The quick ratio, on the other hand, excludes inventories, offering a clearer view of liquid assets available to meet short-term obligations. These ratios help gauge a firm's immediate financial stability and potential to handle upcoming financial challenges.

The Price-to-Earnings (P/E) ratio is key for stock valuation. Compare it against the company's sector and its five-year average to see if the current P/E is typical or unusual. Anomalies might indicate the stock is under or overvalued.

Assess a company's intrinsic value using tangible book value and discounted cash flow (DCF) analysis. Tangible book value excludes intangible assets like goodwill, providing a clearer picture of a company's worth. For example, McDonald's intrinsic value includes its real estate holdings, which are not immediately obvious from its earnings reports. Sarge advises caution if intangible assets exceed 35%.

This method focuses on criteria such as current quarterly earnings, annual earnings, new products, supply and demand, leadership, institutional ownership, and market direction. Sarge incorporates some CANSLIM principles into his trading to catch dips in rising stocks, particularly those within 15% of their 52-week high.

Blend quantitative metrics like P/E ratios with qualitative factors such as management quality. Conduct thorough research, including listening to earnings calls and reviewing insider trading. For example, a CEO buying stock signals confidence. Short-term traders focus on technical indicators, while long-term investors prioritize fundamentals and qualitative aspects.

🌟 Mission accomplished, mooers! Remember, the market battlefield is unpredictable; Even the most seasoned traders can't win them all. But with Sarge's strategies in your arsenal, you might earn your stripes needed to keep up.