Stock Screening Guidelines

Screening for stocks involves three steps; (1) preliminary screen, (2) detailed screen, and (3) Stock Selection Guide preparation.  This working document outlines an approach for completing each step.  As you screen for stocks, please let the group know of any useful tools, web sites, information sources, etc., you run across, and we can include them in future versions of this document. 

Step 1:  The Preliminary Screen

The universe of potential stock investments includes thousands of companies.  The purpose of the preliminary screen is to narrow that universe to a manageable group of companies to evaluate further using the club’s basic investment criteria.  In this initial screen, you will look for companies with the following:
•	Current sales growth of at least 15%;
•	Earnings (EPS) growth of at least 15%; and
•	P/E less than 30.

At the end of this step, you will have identified prospective stocks that must be evaluated further to determine whether they warrant additional analysis using the Stock Selection Guide (SSG).  Below are several sources with lists of prospective stocks and/or screening tools to find such stocks.

Motley Fool
·	Go to www.fool.com
•	Click on the Stock Research tab.
•	Scroll down to the Tools & Resources box and click on “Stock Screens.”
•	Scroll to bottom of the page and click on “Rising Margins” or “Beat Estimates.”
•	(Alternatively, you can go directly to www.fool.stockscreens/risingmargins.htm http://www.fool.stockscreens/risingmargins.htm  OR www.fool.stockscreens/beatestimates.htm 
•	Start your Prospective Stocks list with these results.

CNBC
·	Go to www.cnbc.com
•	Click on the Research Center tab.
•	Click on “Stock Screener.”
•	Click on “All US Markets”
•	Click on “All Industries”
•	Click on “All Issues”
•	Enter the following data, then screen for stocks:
o	EPS Growth 1 Yr: Enter 15 in the “Minimum” column, and click “High as Possible”
o	EPS Growth 5 Yr: Enter 15 in the “Minimum” column, and click “High as Possible”
o	P/E Ratio: Enter 30 in the “Maximum” column and click “Display Only”
o	Sales Growth 1 Yr: Enter 15 in the “Minimum” column, and click “High as Possible”
o	Sales Growth 5 Yr: Enter 15 in the Minimum column, and click “High as Possible”
o	Market Capitalization at least 500,000,000 and click “Display Only”

•	Click on “Search Now”
•	Click on “Display Table with Criteria Values”
•	Add these stocks to your Prospective Stocks list.

Wall Street Research Net
·	Go to www.wsrn.com
•	Click “Stock Screening” and enter the following data:
o	P/E, Trailing 12 Mos.: Enter 30 in the “Maximum” box
o	% Change in EPS: Enter 15 in the “Minimum” boxes for both “Last Quarter” and “5 Year Growth Rate”
o	Ratio: Enter 0.33 in the “Maximum” box for “Debt to Equity Ratio”
o	Market Cap ($ Millions): Enter 500 in the “Minimum” box
•	Click on “Submit Query” and add these stocks to your Prospective Stocks list.

Morningstar
·	Go to www.morningstar.com
•	Click on Stock Selector.  This screener appears to be rather inflexible.  The others are probably more useful and rigorous.  However, you may still be able to find some prospective stocks using this tool.
•	Add these stocks to your Prospective Stocks list.
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•	Value Line
•	Go to the public library and check out the Value Line Investment Survey.
•	The “Summary and Index” contains many screened lists prepared by Value Line.
•	The following are three particularly valuable sections:
1)	TIMELY STOCKS IN TIMELY INDUSTRIES located just past the INDEX OF STOCKS;
2)	TIMELY STOCKS which follows TIMELY STOCKS IN TIMELY INDUSTRIES; and
3)	HIGHEST GROWTH STOCKS located near the back of the “Summary and Index.”
•	Review these sections for stocks with a current PE lower than 30 and “Estimated 3-5 Year Price Potential” of at least 60%.
•	Add these stocks to your Prospective Stocks list.
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•	Step 2:  The Detailed Screen
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•	The next step is to screen your Prospective Stocks list for stocks that warrant additional analysis using the SSG.  You will find the data you need at Motley Fool stock quotes page (<http://quote.fool.com>).
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•	Go to the Motley Fool stock quotes page.
•	For each prospective stock with a market cap greater than $500 million, enter the stock ticker symbol and click on “Go.”
•	Click on  “Detailed” and record the current price, trading volume, and P/E ratio.
•	Click on “Financials” and verify the following:
o	1, 3 & 5 year sales growth rates are at least 15%
o	1, 3 & 5 year EPS growth rates are at least 15%.
•	Click on “Snapshot” and review the quarterly revenue and EPS figures for recent financial anomalies.
•	Click on the Charts tab and set the chart criteria the following:
o	Time frame of 10 years.
o	Compare against S&P 500.
o	200-day moving average.

Next, compare the stock to other competing stocks in the same industry.

•	Go to www.morningstar.com <http://www.morningstar.com>.
•	Enter the stock symbol in the quote box and click on “Go.”
•	Click on the “Industry Peers” link located on the left side of the page under “Industry Snapshot.”
•	Review the Growth, Profitability, Financial Health, and Valuation grades.  How do the grades compare to those for other stocks on the list?  Are there other, more highly rated, companies you can add to your Prospective Stocks list?
•	Record the 5 Yr Growth rate for both the company and industry.
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•	To look for competitor comparison and stock performance information, you can also go to <http://quicken.com/investments/estimates/>, enter the stock symbol and then click on “Compare stock to competitors.”
•	On the page the comes up, click on “Show all competitors.”
•	Select all of the companies with market capitalization > $500 million and then click “Go.”
•	Click on “Fundamentals” for past performance data and on “Analyst Estimates” for long term EPS growth estimates.
•	How does the stock compare to other stocks on the list?  Are there other companies you can add to your Prospective Stocks list?
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•	Step 3:  The SSG Preparation
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•	The final step is to analyze your remaining target stocks using the SSG.  To do this, you will need the following for each stock:
•	Value Line report;
•	Current stock price;
•	Most recent quarterly EPS and revenue figures;
•	Lowest long-term EPS growth estimate from Yahoo.com, Fool.com, Value Line, CNBC.com, etc.
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•	Value Line Report
•	Go to the public library and check out the Value Line Investment Survey.
•	Copy the report for each target stock.
•	Copy the industry analysis page for each industry represented in your target stock list.  The industry analysis page is the first page of each industry section.  For example, the report for Microsoft is located in the “Computer Software & Services” section.  The first page of that section is a broad analysis of the industry, and gives an indication of where the industry is with respect to its cycle and how the industry is expected to perform over the next 6-12 months and 3-5 years.

Investorama
Investorama maintains a library of SSG files that you can download for free.  Before you go through effort of entering all that data, check here first.  If you find the SSG file at Investorama, check the data very carefully to be sure it matches the data in your Value Line report, and correct any data discrepancies.  You can find the completed SSG files at www.investorama.com. If a completed SSG file is not available, fill out the SSG data using the figures included in the Value Line report.

Stock Selection Guide
Use the SSG to evaluate the stock.  If the stock looks promising, e-mail SSG file to the other members of the Stock Selection Committee for them to review. The committee will compare all stocks submitted for review and determine which ones warrant final evaluation using the Stock Selection Report (SSR).