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17 views22 pages

Sample Chapters

Uploaded by

mahalaxmiastrovastu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Introduction to stock screening

In today’s time period it is very essential to have precision while


investing / trading due to highly volatile financial markets .

Stock screening enables an investor / trader to time their


positions efficiently due to the use of appropriate parameters.

There are two main types of screening, Fundamental & technical


screening which has their own subtypes which we will see in
their respective chapters further.

The process of screening is a relatively new concept in the


financial markets unlike the traditional method used in the past.

The traditional methods were very time consuming and


exhausting for an individual as it included performing the
analysis of the securities manually .
Today there are several platforms that offer the screening in their
system , which ultimately reduces the time and resources of the
individual .

The screeners used in this book are open source platforms which
do not require any subscriptions to operate it .

Many institutions use algorithms for trade / investments analysis


and still do not make any substantial return out of it , This is
because of the application of unconventional methods .

All the veteran investors used simple but effective


methodologies in order to analyze the securities and still made
substantial returns from the markets .

We will be seeing the same traditional but effective parameters


which an individual can use which are time proven parameters .

In case of screening the parameters play a vital role , It depends


on several factors such as your motive , risk taking ability &
duration of security positions .
Based on such parameters you’ll derive the results and
accordingly enter into a position .

Screening process

Screening process in simple terms is to find the security which is


appropriate for the trader / Investor .

It is basically finding the right securities for the individual


according to the risk , time constraints & objectives .

For the trader the parameters will be different and for the
investor the parameters would vary.

The platforms / systems used will also be different for


fundamental & technical screening respectively.

Fundamental screening

Fundamental screening refers to a process which involves


finding the securities by virtue of input of specific parameters
into the system / platform .
The fundamental parameters are usually the financial ratios ,
Statements, Securities returns etc.

Following are some of the platforms that can be used for


fundamental screening ,

● Screener.in
● Tradingview
● Topstock research
● Tickertape

The above platforms are free to use and are very effective in
getting the desired securities from the entered parameters.
Now we would be looking at several parameters that the investor
can use in order to perform the fundamental screening.

Before starting the screening process, The following points must


be considered . These points are as important as the screening
process itself and should not be ignored.

1. Objective of the investor


2. Knowledge / experience
3. Risk bearing capacity
4. Use of parameters
5. Sector / industry preference
6. Capitalization of security
7. Other factors

You would not find anything more important in investing than


picking / selecting stocks in which you want to invest .Therefore
selection of stocks is the most important factor in investing
activity , hence we should completely have a firm hold on the
methodology that is to be followed in such an activity.

Following is the stock selection methodology and steps involved


in the stock selection ,

1) Investor profiling

2) Stock screening

3) Scrutinize
Chapter 2 : Screening on screener.in

We will now apply Financial ratios and the financial parameters


in order to find appropriate stocks.

There would be three types of screening we would be looking at


and following are the types ,

● Profitable companies
● Sustainable companies
● Undervalued companies

Note : No sales / promotion of financial platforms have been


into performance.

Stock selection criteria : following are some of the criteria on


which we can perform screening accordingly.

i. Type ( smallcap- midcap - large cap )

ii. Valuation

iii. Financials

iv. Sector
v. Growth & Returns

We have seen that investor profiling plays an important part in


identifying many factors such as , capital adequacy , risk
appetite and investment proposition .

Now based on quantitative parameters we would initiate the


screening process.

Input of parameters : There are several parameters to find


appropriate while screening of stocks .

i. For finding profitable companies:

● ROCE
● PROFIT GROWTH %
● ROE
● EPS
● ROIC
●

ii. For finding sustainable companies:

● Return over 3yrs


● sales growth 5yrs
● debt/equity
● market capitalization

iii. Finding undervalued companies:

● P/E
● P/BV
● D/E
● PEG

Shortlisting : This process basically involves selecting a few


firms out of the derived results on the stock screener .

This can be done on certain basis such as the profitability ,


valuation and growth prospect of the firm .

Example : You have got 50 stocks as a result on the screening


part , now you would not be able to fully analyze the 50 firms so
you will select a few firms to analyze , this is what shortlisting is
in screening.

You can use various ways to shortlist the firms , such as by


current price , by p/e or by market capitalization .

Further will be seeing the analyzing part on the companies that


are derived as a result on screener .
Analyzing :

This the most important part of the screening procedure you


would be required to analyze the financial statements and
competitive analysis on the selected companies.

Following is the step to analyze any derived firm from the


screening ,

● Ratio analysis
● Financial statement analysis
● Valuation analysis
● Growth estimation

Following is the exact procedure for the stock screening . This


includes usage of various parameters and selection methodology
.

Profitable companies : Following are the parameters that have


been used ,

● Profit growth > 10


● Sales growth > 10
● Market Capitalization > 10000
● Return on equity > 10
● Return on capital employed > 10
● Return on assets > 10

Above are the top 5 results on the screener , Each company


above has been highly profitable.

Sustainable companies : These types of companies are strong in


financials and have seen many business ups and downs over the
many years .

Followings are the parameters for the same ,

● Return over 3 years > 45


● Profit growth 3 Years > 10
● Sales growth 5 Years > 10
● Market Capitalization > 5000
● Price to Earning < 25

Undervalued companies :

Following are the parameters for undervalued companies ,

● Price to Earning < 25


● Price to book value < 1
● PEG Ratio < 1.5
● Current price < 1000
● Market Capitalization > 5000
● Debt to equity < 1

Till now we saw the screening process on the screener.in


platform using certain financial parameters,

screening on ticker tape platform

This type of screening will be sector / industry based .

Step 1 : Select the stock universe (Index)


Here you are required to select the index in which you will get
the results from .

If you select NIFTY 50 then you will be getting the results of


stock which are part of that index.

Step 2 : Select the market capitalization


Step 3 : Add additional filters

Here you can add the desired parameters according to the


investment objectives .
This platform is used because it supports few additional filters as
compared to the screener.in platform such as Beta,
sector/industry , CAGR etc .

The parameters you have to use are the same as discussed earlier
while seeing the screener.in platform .

Step 4 : Selection of risk parameters


It is ideal to keep the Beta in the range of 0-1 because if you
select a stock which has a beta < 0 then it is negatively
correlated if you select a stock with beta > 1 then it is a very
volatile / risky stock.

Step 5 : Sector selection


Here the investor should select the sector according to the trends
in the market & the profitability of the sector .

If the sector is cyclical like FMCG & Pharma then it will


underperform for a certain time period so it is important to select
such sectors very carefully .

There are other platforms as well , but in my personal opinion


ticker tape and screener.in are easy to use and efficiently show
the results as well.The screening should be performed according
to the said objectives and the parameters should be precise .

Post screening the analysis is very crucial and it should not be


overlooked . If you get the results from the screener it is
important to cross check the stocks to ensure the right outcomes.
Chapter 3 :Strategic screens

Here I am providing you with several screens which you can


implement while performing the screening process .

All the screens which will be illustrated are solely created by the
author and the parameters are unconventional in nature.

Screen 1 : Alpha 10 ( Financial sound companies )

Profit growth > 10


Sales growth > 10
Market Capitalization > 10000
Return on equity > 10
Return on capital employed > 10
Return on assets > 10
Debt to equity < 1
Current price < 2000
Screen 2 : GFACT 10 (High growth)

Market Capitalization > 5000


Sales growth > 20
Profit growth > 20
Price to Earning < 25

Screen 3 : Quantitative performers (Stable financials )

Profit growth 3 Years > 7


Sales growth 3 Years > 7
Price to Earning < 30
Price to book value < 1
Market Capitalization > 4000

Screen 4 :

ORPHIC (^opm , ^roe , pe , high sales growth , income from


subsidiary companies , ^ cagr )

Profit growth > 5


Sales growth > 5
OPM >10
Price to Earning < 30
Market Capitalization > 4000
Return on capital employed > 20
Screen 5 : Flagship equities

Return on equity > 15


Return on assets > 12
Interest Coverage Ratio > 2
Current ratio > 2
Price to Earning < 25
Return on invested capital > 15
EPS > 15
Market Capitalization > 5000
Current price < 550

Screen 6 :

High DVM ( Durability , valuation. momentum )

Interest Coverage Ratio > 2


Current ratio > 1
Market Capitalization > 10000
Price to Earning < 25
Profit growth > 1
Sales growth > 1
Screen 7 :

OPAL (OPM , PROFIT GROWTH , ATR , L.L )

OPM > 25 AND


Market Capitalization > 4000 AND
Current price < 2000 AND
YOY Quarterly profit growth > 20 AND
Price to Earning < 30 AND
YOY Quarterly sales growth > 20 AND
Dividend yield > 0

Screen 8 :

ATOM (^asset returns , ^tat , operational cash flow ,


momentum)

Return on assets > 10


Cash Equivalents > 50
Profit growth > 7
Asset Turnover Ratio > 1
Market Capitalization > 3000
Current price < 500
Dividend yield > 0
YOY Quarterly sales growth > 1
Screen 9 : Valued investments

Price to Earning < 25


Price to book value < 1
PEG Ratio < 1
Current price < 2000
Market Capitalization > 2500

Screen 10 : Sustainable equities

Profit growth > 15


Sales growth > 10
Market capitalization > 10,000
OPM > 25
Return over 5 years > 20
PEG < 2

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