Screening for Stocks -- Fundamental Analysis
Introduction to Fundamental Screening: No matter if you are an Investor or a Swing, Momentum
or Day Trader, finding a good group of Stocks to place in a Portfolio of
Potentials is very beneficial for most and well worth the effort.
Resources:
1. Investopedia University
2. Morningstar Classroom
3. Finviz Screener Help
Basic fundamental data points and ratios:
A. Market Capitalization
Investopedia
explains Market Capitalization
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are:
Large Cap: $10 billion plus and include the companies with the largest market capitalization.
Mid Cap: $2 billion to $10 billion
Small Cap: Less than $2 billion
Categorization of companies by capitalization
B. Style Box
D. Value Stock
E. Growth At A Reasonable Price - GARP
Investopedia
explains Growth At A Reasonable Price - GARP
GARP investing was popularized by legendary Fidelity manager Peter Lynch. While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the price/earnings growth (PEG) ratio. The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.
In a bear market or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors, but subpar to strict value investors who generally purchase shares at P/Es under broad market multiples.
F. Terms:
1. Exchange: The stock exchange on which a company is listed. All stocks listed on: National Association of Securities Dealers Automated Quotation (NASDAQ), New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) are available.
2. Index: A stock's membership in a major stock exchange index such as Dow Jones Industrial or S&P 500. The stock indices track the performance various segments of the market.
3. Sector: Companies are divided into several groups - sectors - according to their business activities.
4. Industry: Companies in a common sector are further divided by products and services into smaller groups - industries.
G. Ratios:
1. P/E: A popular valuation ratio of a company's current share price compared to its per-share earnings (trailing twelve months). Low P/E value indicates a stock is relatively cheap compared to its earnings. For instance, a P/E value of 15 means that the current price equals the sum of 15-year earnings per share. The average level varies across the market. Therefore, P/E value should be compared per sector or industry.
2. Forward P/E: A measure of the price-to-earnings ratio using forecasted earnings for the P/E calculation for the next fiscal year. If the earnings are expected to grow in the future, the forward P/E will be lower than the current P/E.
3. PEG: A ratio used to determine a stock's value while taking into account the earnings' growth. PEG is used to measure a stock's valuation (P/E) against its projected 3-5 year growth rate. It is favored by many over the price/earnings ratio because it also takes growth into account. A lower PEG ratio indicates that a stock is undervalued.
4. P/S: A ratio that reflects the value placed on sales by the market. It is calculated by dividing the current closing price of the stock by the dollar-sales value per share. The ratio is often used to value unprofitable companies.
5. P/B: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is either undervalued or something is fundamentally wrong with the company.
6. Price/Cash: A ratio used to compare a stock's market value to its cash assets. It is calculated by dividing the current closing price of the stock by the latest quarter's cash per share.
7. Price/Free Cash Flow: A valuation metric that compares a company's market price to its level of annual free cash flow.
8. Return on Assets: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
9. Return on Equity: A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested. Calculated as Net Income / Shareholder's Equity.
10. Return on Investment: Performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment.
11. Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. Calculated as Current Assets / Current Liabilities.
12. Quick Ratio: An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. Calculated as (Current Assets - Inventories) / Current Liabilities.
13. Long Term Debt/Equity: A measure of a company's financial leverage calculated by dividing its long term debt by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
14. Debt/Equity: A measure of a company's financial leverage calculated by dividing its liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
Fundamental Trend of The Market: typical -vs- current
Screeners:
Morningstar: Stock Selector
1. Presets: Preset Screeners
2. Weighing/Scoring: Score Integration
Finviz: Stock Screener
Resources:
1. Investopedia University
2. Morningstar Classroom
3. Finviz Screener Help
A. Market Capitalization
What
Does Market Capitalization Mean?
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures.
Frequently referred to as "market cap".
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures.
Frequently referred to as "market cap".
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are:
Large Cap: $10 billion plus and include the companies with the largest market capitalization.
Mid Cap: $2 billion to $10 billion
Small Cap: Less than $2 billion
Categorization of companies by capitalization
Traditionally, companies are divided into large-cap, mid-cap, and small-cap. Recently people have added 'micro-cap' and 'nano-cap'. People have rules of thumb to determine category from market capitalization. These need to be adjusted over time due to inflation, population change, and overall market valuation (for example, $1 billion was a large market cap in 1950 but it is not very large now), and they may be different for different countries. A rule of thumb may look like:[3]
- Mega-cap: Over $200 billion
- Large-cap: $10 billion–$200 billion
- Mid-cap: $2 billion–$10 billion
- Small-cap: $300 million–$2 billion
- Micro-cap: $50 million-$300 million[4]
- Nano-cap: Below $50 million
Different numbers are used by different indexes; there is no official definition of or general agreement about the exact cutoffs. They also may be done by percentiles rather than fixed cutoffs.
B. Style Box
What
Does Style Box Mean?
Created by Morningstar, a style box is designed to visually represent the investment characteristics of fixed-income (bond), domestic equity (stock) and international equity (stock) securities and their respective mutual funds. A style box is a valuable tool for investors to use to determine the asset allocation and risk-return structures of their portfolios and/or how a security fits into their investing criteria. There are slightly different style boxes used for equity and fixed-income funds.
Created by Morningstar, a style box is designed to visually represent the investment characteristics of fixed-income (bond), domestic equity (stock) and international equity (stock) securities and their respective mutual funds. A style box is a valuable tool for investors to use to determine the asset allocation and risk-return structures of their portfolios and/or how a security fits into their investing criteria. There are slightly different style boxes used for equity and fixed-income funds.
Investopedia
explains Style Box
For stock funds (domestic and international), the horizontal axis of the style box is divided into three investment style categories: value, blend (a value/growth mix) and growth. The vertical axis is divided into three company-size (based on market-capitalization) indicators: large, medium and small.
For bonds and bond funds, the horizontal axis is divided into three maturity categories: short-term, intermediate-term, and long-term. The vertical axis is divided into three credit-quality categories: high, medium and low (BB-C).
Investors can use a style box to put together mutual fund portfolio and visually see the results as a total picture. For example, an investor looking for a relatively safe stock fund would seek out one categorized as a large-cap value fund. If that same investor is willing to accept more risk for the opportunity of a greater return, he/she might select a fund in the small-cap growth category. Putting dollar values on the fund selections in the same and/or differing category squares will readily reflect the risk-return parameters of the whole portfolio.
C. Growth Stock
Investopedia
explains Growth Stock
A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks.
Note that a growth company's stock is not always classified as growth stock. In fact, a growth company's stock is often overvalued.
For stock funds (domestic and international), the horizontal axis of the style box is divided into three investment style categories: value, blend (a value/growth mix) and growth. The vertical axis is divided into three company-size (based on market-capitalization) indicators: large, medium and small.
For bonds and bond funds, the horizontal axis is divided into three maturity categories: short-term, intermediate-term, and long-term. The vertical axis is divided into three credit-quality categories: high, medium and low (BB-C).
Investors can use a style box to put together mutual fund portfolio and visually see the results as a total picture. For example, an investor looking for a relatively safe stock fund would seek out one categorized as a large-cap value fund. If that same investor is willing to accept more risk for the opportunity of a greater return, he/she might select a fund in the small-cap growth category. Putting dollar values on the fund selections in the same and/or differing category squares will readily reflect the risk-return parameters of the whole portfolio.
C. Growth Stock
What
Does Growth Stock Mean?
Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.
Also known as a "glamor stock".
Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.
Also known as a "glamor stock".
A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks.
Note that a growth company's stock is not always classified as growth stock. In fact, a growth company's stock is often overvalued.
D. Value Stock
What
Does Value Stock Mean?
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
Investopedia
explains Value Stock
A value investor believes that the market isn't always efficient and that it's possible to find companies trading for less than they are worth. An easy way to attempt to find value stocks is to use the "Dogs of the Dow" investing strategy - buying of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter.
A value investor believes that the market isn't always efficient and that it's possible to find companies trading for less than they are worth. An easy way to attempt to find value stocks is to use the "Dogs of the Dow" investing strategy - buying of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter.
E. Growth At A Reasonable Price - GARP
What
Does Growth At A Reasonable Price - GARP Mean?
An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels (a tenet of growth investing ) while excluding companies that have very high valuations (value investing). The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low price/earnings (P/E) multiples in normal market conditions.
An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels (a tenet of growth investing ) while excluding companies that have very high valuations (value investing). The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low price/earnings (P/E) multiples in normal market conditions.
GARP investing was popularized by legendary Fidelity manager Peter Lynch. While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the price/earnings growth (PEG) ratio. The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.
In a bear market or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors, but subpar to strict value investors who generally purchase shares at P/Es under broad market multiples.
F. Terms:
1. Exchange: The stock exchange on which a company is listed. All stocks listed on: National Association of Securities Dealers Automated Quotation (NASDAQ), New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) are available.
2. Index: A stock's membership in a major stock exchange index such as Dow Jones Industrial or S&P 500. The stock indices track the performance various segments of the market.
3. Sector: Companies are divided into several groups - sectors - according to their business activities.
4. Industry: Companies in a common sector are further divided by products and services into smaller groups - industries.
G. Ratios:
1. P/E: A popular valuation ratio of a company's current share price compared to its per-share earnings (trailing twelve months). Low P/E value indicates a stock is relatively cheap compared to its earnings. For instance, a P/E value of 15 means that the current price equals the sum of 15-year earnings per share. The average level varies across the market. Therefore, P/E value should be compared per sector or industry.
|
P/E = Current Market Price / Earnings Per Share (EPS) P/E = Average Common Stock Price / Net Income Per Share EPS = (Net Income - Dividends On Preferred Stock) / Average Outstanding Shares |
2. Forward P/E: A measure of the price-to-earnings ratio using forecasted earnings for the P/E calculation for the next fiscal year. If the earnings are expected to grow in the future, the forward P/E will be lower than the current P/E.
|
Forward P/E = Current Market Price / Forceasted Earnings Per Share |
3. PEG: A ratio used to determine a stock's value while taking into account the earnings' growth. PEG is used to measure a stock's valuation (P/E) against its projected 3-5 year growth rate. It is favored by many over the price/earnings ratio because it also takes growth into account. A lower PEG ratio indicates that a stock is undervalued.
|
PEG = (P/E) / Annual EPS Growth |
4. P/S: A ratio that reflects the value placed on sales by the market. It is calculated by dividing the current closing price of the stock by the dollar-sales value per share. The ratio is often used to value unprofitable companies.
|
P/S = Current Market Price / Total Revenues Per Share |
5. P/B: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is either undervalued or something is fundamentally wrong with the company.
|
P/B = Current Market Price / (Total Assets - Total Liabilities) P/B = Current Marker Price / (Total Common Equity / Total Common Shares Outstanding) Book Value = (Total Assets - Total Liabilities) = Share Holder's Equity |
6. Price/Cash: A ratio used to compare a stock's market value to its cash assets. It is calculated by dividing the current closing price of the stock by the latest quarter's cash per share.
| P/C = Current Market Price / Cash per Share |
7. Price/Free Cash Flow: A valuation metric that compares a company's market price to its level of annual free cash flow.
| P/FCF = Current Market Price / Cash Flow per Share |
8. Return on Assets: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
|
ROA = Annual Earnings / Total Assets |
9. Return on Equity: A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested. Calculated as Net Income / Shareholder's Equity.
|
ROE = Annual Net Income / Share Holder's Equity ROE = Annual Net Income / Book Value ROE = Annual Net Income / (Total Assets - Total Liabilities) |
10. Return on Investment: Performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment.
|
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment. |
11. Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. Calculated as Current Assets / Current Liabilities.
|
Current Ratio = Current Assets / Current Liabilities |
12. Quick Ratio: An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. Calculated as (Current Assets - Inventories) / Current Liabilities.
|
Quick Ratio = (Current Assets - Inventories) / Current Liabilities |
13. Long Term Debt/Equity: A measure of a company's financial leverage calculated by dividing its long term debt by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
|
LT Debt/Equity = Long Term Debt / (Share Holder's Equity) LT Debt/Equity = Long Term Debt / (Total Assets - Total Liabilities) LT Debt/Equity = Long Term Debt / (Book Value) |
14. Debt/Equity: A measure of a company's financial leverage calculated by dividing its liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
|
Debt/Equity = Current Liabilities / (Share Holder's Equity) Debt/Equity = Current Liabilities / (Total Assets - Total Liabilities) Debt/Equity = Current Liabilities / (Book Value) |
Fundamental Trend of The Market: typical -vs- current
Screeners:
Morningstar: Stock Selector
1. Presets: Preset Screeners
2. Weighing/Scoring: Score Integration
Finviz: Stock Screener
Posted by Cove Reflections at 3/4/2010 5:47 PM 
Categories: Research and Analysis
Tags: Screener Screening FA Fundamental PE PEG Market Cap GARP
Categories: Research and Analysis
Tags: Screener Screening FA Fundamental PE PEG Market Cap GARP
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