Download - How to use stock screeners to find value stocks

How to use technology to pick winning stocks

FinToolbox/Screener.co

Monday, September 26, 2011

My background

• management consulting

• generic frameworks for data analytics

• VC analyst

• ownership mentality

• “extreme” buy and hold


FinToolbox/Screener.co

2009 2010

sale sh

opping, lacke

d data

flash-cr

ash, opportu

nities

2011

launched beta


Investment Methodology


Investors struggle with too many decisions


look for reasons not to invest

Investing as exclusionary process


Screening process

= investment candidate


Continue looking for reasons not to

invest


TEST

intuition

outside knowledge

cyclical valuationsvs.

acyclical declines


Review public filings/public info

• Material changes to business• risk factors• long-term obligations• management/analyst forecasts• news (Internet traffic, industry data/reports, new

products)

Still looking for reason not to invest


Red flags?


Metrics


Define custom metrics

in addition to those normally used


Metrics used for exclusion

Still need full company checkup


Valuation

1. EV/EBITDA (in addition to P/E)1. target 3x to 6x for value2. 6x to 10x if willing to pay up for strong growth +

interesting (growth) markets2. Price/Net Tangible Assets (in addition to P/B)1. .5x to 1.5x for value companies (in other words, NTA/

Market Cap >.67x)2. Caveat: beware too many long-term or illiquid assets, particularly for financials.

New accounting rules since credit crisis give more leeway in valuing illiquid securities and whether PP&E and other long term tangible assets reflect true value depend on how their depreciation schedule reflects actual depreciation


Valuation (cont’d)1. “Margin of Safety”/Downside Risk

1. NCAV1. NCAV<Market Cap (1.2<x<1.5), if profitable2. otherwise just NCAV<Market Cap3. Caveats: beware high (and/or growing) levels of inventory

that may need to be written down if demand doesn’t materialize

2. Net Tangible Assets/Market capitalization3. (Total Current Assets - Total Liabilities)/Market capitalization4. (Total Current Assets - Inventory - Total Liabilities)/Market

capitalization1. higher is better (obviously), use this as display variable

(not filter)


Valuation (cont’d)

2. Multiple of Profitability1. EBITDA/(Market capitalization - Net tangible

assets)2. alternative to ROE, higher is better3. ranking variable (doesn’t have to be >5 but

flexible)


Consistency of results

1. Multi-period comparisons of revenue and net income

2. Estimates relative to past performance


Consistency of results [cont’d]

• looking for stability and or growth. • Screener.co supports up to 10 quarters/years but I rarely go that far

back (unless looking at PE10)• Now, I find looking at how companies performed during the last

recession (2008-2009 full years) an interesting metric, gives a sense for how the company holds up during the bottom of the economic cycle

• Even for cyclical companies, I like to see that they are able to maintain profitability or have modest cash-losses relative to their balance sheet (so they are not likely to get into distress even during a prolonged downturn)

• Use estimates to look forward and ensure future expectations are not dramatically poorer than past performance


Q&A


How to use technology to pick winning stocks

Learn more: Screener.co


http://www.screener.co

http://www.screener.co

Download - How to use stock screeners to find value stocks

Top Related