How to find good companies to trade – using Fundamental Analysis Part 2

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Throughout much of 2017, we have been discussing WHEN to enter a trade. So in the last article we discussed the role of Fundamental Analysis when looking at stocks i.e. How to find WHICH company to invest in. This month we continue by looking at an online stock screener which literally allows to us filter or screen 7000+ stocks to find the ones we might be interested in.

Remember we are not looking to play the same game as everyone else – to find a company that will go up 1000% and make us millionaires overnight. While it sounds good, it isn’t that easy to do. So instead we are going to find good companies and then use the strategies we have been discussing  to enter the trade – remember if you don’t have the strategies you can download them at www.investment-mastery.com/wealthwatch

 

The criteria we explained last time were:

1. PEG Ratio of below 1

2. Earnings growth projection of 20% plus

3. Debt of below 30%

4. Institutional ownership of over 30%

5. Price over $10

7000+ stocks is too much for us to look at (although I did have a trader friend of mine who used to spend 5 hours every week staring at a screen doing just that). Nowadays stock screeners such as www.Finviz.com automatically filter down to meet our criteria, which leaves us with a much more manageable number for us to look at every month, say 25. So we are, in essence, filtering down using our criteria to get a smaller number every time. This is how it works, so try it at home!While putting in price above $10 hardly changes anything at all, putting in EPS growth of over 35% in the next 5 years means we have only 836 left! It’s still too many charts for us to look at. Put in the debt lower than 30% and it comes down to 370. Still too large. Adding institutional ownership narrows it down to 321 but this is still too long for us to manage. Time to get out the big guns. The PEG under 1 gets us down to 52! Looks like only 52 stocks out of a universe of 7000+ are undervalued at the moment. Not surprising considering we have been in a bull market since 2009.Remember we are looking to get the list down to a more manageable number so the smaller the number the better – Increasing EPS growth to over 20% gets us down to 29. Much more manageable.

So this is what the final screen looks like:

If you wanted to get that number down even more, you just need to add more criteria. As you can see there’s plenty to choose from. For example, you might want to find companies giving you an annual dividend for cash-flow. Or change some of the values in the criteria we have already chosen. The more strict the values are, the less stocks will appear, the more lax the values, the more stocks will appear.

Let’s take a look at some of the stocks. I like to start with the ones that have the lowest PEG Ratio, i.e. the ones that are undervalued the most. Please note that this does not mean it is the right time to buy the stock, in fact it rarely is – it just means it is undervalued. It might continue to stay undervalued for a while – no-one knows how long – and I don’t want to get into a long term buy-and-hold position when all I am looking for is a short term trade to gain anywhere between 5-10% within a few weeks and if necessary, months.

By pressing on the ‘Valuations’ tab, I get a list of various criteria. I want to start with the lowest PEG Ratios. By pressing on the top I can sort it that way, with the lowest PEG ratio starting at the top.

By placing the cursor on the stock symbol on the left, you can quickly look at each stock chart to see if there are any chart patterns you like. I actually like the first one with the lowest PEG (see picture above) because it is heading up but with up and down swings. This gives us a good entry point. The price is too high right now – it seems to be in the middle of its range and we just need it to come down again and then we can consider an entry point.

If we want to know the highest Earnings per Share growth (EPS) in the next 5 years, you can you can do that too.

Notice that DKL, which was ranked number 1 on PEG, is ranked number 4 on EPS next 5 years.SAVE (see stock chart above) has also now caught my eye due to its nice up and down swings and is ready for lift-off using my Buffalo Strategy. Let’s see what happens to these two stocks in the next few weeks.I am going to throw a wildcard in as well. GEOS looks like a prime suspect for my VCA strategy. It has come from a high of 107 and is now at 73, a 30% drop. Normally, we get in at around 20% drop. So we would already be in this stock by now and it has a good bounce off 65. It looks set to lift off.Go ahead and have some fun – try this out at home at www.finviz.com

Compared to the other ways of making money – stocks and shares trading takes a few months to really master. And in times like these it is a MUST for you to learn more about what trading and investing in stocks, commodities and precious metals has to offer. We are having a series of 1 day events where we go through the strategies so you can take control of your own finances. But first, why not go ahead and download your FREE STRATEGY REPORT:  www.investment-mastery.com/wealthwatch

Until next time

Marcus

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