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How to use stock screeners to find value stocks
 

How to use stock screeners to find value stocks

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A presentation I used with founder of Screener.co, Lenny Grover. We discuss how he developed the technology to put incredible investing research power in the hands of individuals. ...

A presentation I used with founder of Screener.co, Lenny Grover. We discuss how he developed the technology to put incredible investing research power in the hands of individuals.

Lenny also shares the criteria he uses when looking for value stocks.

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    How to use stock screeners to find value stocks How to use stock screeners to find value stocks Presentation Transcript

    • How to use technology to pick winning stocks FinToolbox/Screener.coMonday, September 26, 2011
    • My background • management consulting • generic frameworks for data analytics • VC analyst • ownership mentality • “extreme” buy and holdMonday, September 26, 2011
    • FinToolbox/Screener.co ata it ies dd tun cke or , la pp ta ing ,o be pp ash ed sho h- cr ch sal e fl as laun 2009 2010 2011Monday, September 26, 2011
    • Investment MethodologyMonday, September 26, 2011
    • Investors struggle with too many decisionsMonday, September 26, 2011
    • Investing as exclusionary process look for reasons not to investMonday, September 26, 2011
    • Screening process = investment candidateMonday, September 26, 2011
    • Continue looking for reasons not to investMonday, September 26, 2011
    • E ST T cyclical valuations vs. acyclical declines outside knowledge intuitionMonday, September 26, 2011
    • 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 investMonday, September 26, 2011
    • Red flags?Monday, September 26, 2011
    • MetricsMonday, September 26, 2011
    • Define custom metrics in addition to those normally usedMonday, September 26, 2011
    • Metrics used for exclusion Still need full company checkupMonday, September 26, 2011
    • Valuation 1. EV/EBITDA (in addition to P/E) 1. target 3x to 6x for value 2. 6x to 10x if willing to pay up for strong growth + interesting (growth) markets 2. 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 depreciationMonday, September 26, 2011
    • Valuation (cont’d) 1. “Margin of Safety”/Downside Risk 1. NCAV 1. NCAV<Market Cap (1.2<x<1.5), if profitable 2. otherwise just NCAV<Market Cap 3. 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 capitalization 3. (Total Current Assets - Total Liabilities)/Market capitalization 4. (Total Current Assets - Inventory - Total Liabilities)/Market capitalization 1. higher is better (obviously), use this as display variable (not filter)Monday, September 26, 2011
    • Valuation (cont’d) 2. Multiple of Profitability 1. EBITDA/(Market capitalization - Net tangible assets) 2. alternative to ROE, higher is better 3. ranking variable (doesn’t have to be >5 but flexible)Monday, September 26, 2011
    • Consistency of results 1. Multi-period comparisons of revenue and net income 2. Estimates relative to past performanceMonday, September 26, 2011
    • 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 performanceMonday, September 26, 2011
    • Q&AMonday, September 26, 2011
    • How to use technology to pick winning stocks Learn more: Screener.coMonday, September 26, 2011