Thursday 2 February 2012

How do i screen stocks?

Many of investors finding difficulties in screening stocks.
Here are some of my method when i start screening for good stocks.

1) Look at the trend that the markets are trending before jumping into any shares. Eg : Decline in rubber prices, we can conclude that rubber glove manufacture will benefit while the rubber plantation companies will be losing out.

2) After looking for trend, start looking for companies that will benefit the most. In other words, start looking for companies that are undervalue or trading below their intrinsic value.

3) After searching for companies by looking at their future prospect, an investors should realize that investors should look at the liquidity of the shares. Preferably, beta with more than 1.20. The purpose of this is that although the shares is trading below their intrinsic value, somehow when there is no liquidity in the shares, there bound to have no volume and the share price will be trading at the same range and investors money will get stuck there.

4) What to look for when there is so many companies. Study the company.

  • Is the company conservatively financed? A lack of long term debt is seen as a good indication that a company has a durable competitive advantage. Ideally, long term deb burden less than 4x net earnings.
  • Look for business that consistently earn a high rate of return on shareholders' equity. A consistent returns on equity with 15% or higher, provide a good indication that management can profitably employ retained earnings. 
  • Look for continuously positive cash flow
  • Sustainable growth for the past few years and be sure that their earnings are consistent. 


5) If possible, try to look for fund managers favourite shares. This is because, there will be more liquidity and volume in the shares that make the share price to move up and down in a faster pace.

6) Try not to jump into any shares although you ought to think that the share price is undervalue. Why? Share markets will not rise forever neither will it tumble forever. What i am trying to convey to fellow investors is that don't buy any shares during the peak unless you are a speculator or trader. For value investing, timing is very crucial.

7) Lastly, try learning some basic in technical analysis to time when is the right time to buy the shares after analysing the best shares that caught your mind.

Happy investing!
Daniel