How to screen the market for the best growth & income stocks

How to screen the stock market
for growth & income winners

Who is this for?
2. Experienced investors looking to ﬁnd
better ideas using advanced screening.
1. Developing investors who want to ﬁnd a
more effective investment idea source.
3. International investors….

1. Introduction to Screening
2. Simple Screening for Novices
1. Choosing your Approach - quality, income, growth?
2. StockRanks - the simplest way to ﬁnd effective stocks
3. GuruScreens - taking it further with the legends of investing
3. Learning from Slater - a growth strategy breakdown
4. Creating custom screens for better results
5. A Cookbook of Screening Rules and Metric Types
6. Q&A and Live Requests
Agenda

Ed Page Croft, CFA
Co-Founder & CEO Stockopedia.com
Oxford Scholar, ex-Goldman Sachs Private Clients.

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must be used for informational purposes only. Our Stock Reports and screens are based on underlying data from other suppliers
including Thomson Reuters which is believed but not guaranteed to be accurate. Any figures cited are subject to change or possible
correction. If we are notified of a possible error, we will endeavour to notify our supplier of this issue, although we cannot be certain that
they will be willing to correct the error identified. Any forward looking information is based on the Consensus Analyst Estimate as
defined by Thomson Reuters and is subject to their assumptions but does not involve subjective judgement by Stockopedia.
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We would like to draw your attention to the following important investment warnings:
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Please note that all data in this document is historic and dated when this document went to print: 1st October 2019
Disclaimer

Why use a stock screener?
“How might an ordinary investor, who does his
or her own stock picking, unearth a gem like
Dart? Most likely using online systems such as
the ones developed by Stockopedia… stock
screening systems really, really matter."
David Stevenson
FINANCIAL TIMES 
 
“Stock Screens to net the ones that got away” - Read Article

Dart Group - 2013 to 2020
⭐
600%

The Most Popular Stock Idea Sources
1. Press Tips 2. Broker Recs
3. Bulletin Boards 4. Conferences

Share Tips can be unreliable
This chart was generated by calculating the performance of the ‘tips of the year’ of each publication annually.

Before - lack of process & confidence
I used to take a very unstructured approach when picking
investments. I would use tips from financial publications to give me
pointers and simplified financials to screen. My returns were at best
mixed from this approach.
My previous approach to picking investments was haphazard. I used a
mix of sources - magazines, internet etc - that were often contradictory
and combined this with very limited research. I often ended up just
buying companies with recognised brands or high profiles.
To be honest it was fairly difficult, it was probably looking at the press,
internet, tips - not particularly structured, never felt fully confident
about what I was investing in.
James
John
Nick

Why use a stock screener?
1. A reliable idea source to speed up your
research & discovery process
3. Find the best investment ideas before the
crowd has even heard of them
5. Build consistency & discipline into your
investing/trading process
7. Improve your investing results

What factors drive stock returns?
The Market
Quality (proﬁtable beats junk)
Volatility (low risk beats high risk)
Size (small caps beat large caps)
Value (cheap beats expensive)
Momentum (strong beats weak)
Company Speciﬁc Research
StockRanks
RiskRatings
Size Groups

Example: Cheap beats Expensive
Cheapest
Most 
Expensive
The best value stocks outperform the worst value

1500+ stock universe
Top 25% by Quality
Top 25% by Value
Top 25% by Momentum
Just Small  
Caps
Just 9 excellent candidate stocks
The simplest way to  
think about stock screening

How we ensure the highest quality data
1 - Our primary source, Refinitiv (Thomson Reuters),
employs thousands of analysts who scan, audit & standardise
financial data entry into their databases before uploading to their
financial cloud.

2 - Six times per day and night we download financial statements,
analyst estimate data, price quotes & histories and other company
information to our databases.

3 - Our CFAs & Engineers organise it and clean it all up, and our
servers crunch over 60 million computations daily to build up a
library of more than 2000 essential, accurate and timely statistics
on every stock. From simple PE Ratios to Piotroski F-Scores.

4 - We then rank and screen the market to filter the wheat from the
chaff and publish the data as StockRanks, Ratings & Financial Ratios
in our StockReports and in our Screening Database.

StockRanks
Every stock in the market ranked
against all the others for three
proven, historical drivers of return.
StockRanks
Quality
Value
Momentum
StockRank TM
26
10
85
31
26
10
85

StockRanks
StockRanks
Ranked as percentiles between 0
(worst) and 100 (best)
100
0
“Good, cheap, strong”
“Junk, expensive, weak”
25
50
75

StockRank Performance
> 90 StockRank
+139%
< 10 StockRank
-62%
* Based on quarterly rebalanced portfolios of >£10m market capitalisation LSE listed stocks split into deciles according to StockRank.

momentum
value
size
quality
QualityRank > 75
ValueRank > 75
MomentumRank > 75
Size:  
Small Cap
Narrow a broad universe of stocks using ranks…
…to a small set of candidate stocks
Creating a stock screen

momentum
value
size
quality
ROCE > 15
P/S > 1
RS > 0
Mkt Cap
Narrow a broad universe of stocks using ratios…
…to a small set of candidate stocks
Creating a stock screen

GuruScreens 
learn from legends

Zulu Principle
value
momentum
quality
size
Growth at a reasonable price

CAN SLIM
momentum
growth 
& 
quality

Tiny Titans
cheap
strong
small

Zulu Principle
Growth at a reasonable price

“It’s all about
the criteria”
Jim Slater

PEG Ratio
Price / Earnings to Growth Ratio
• Greatly popularised by both Jim Slater’s Zulu Principle and Peter Lynch.
• PEG is calculated by dividing the P/E by the EPS Growth (ideally on a
forecast basis).
• PEG = 1 - indicates the Growth Rate matches the PE Ratio.
• PEG < 1 - indicates the Growth Rate is higher than the PE Ratio.
• PEG >1 - indicates the Growth Rate is lower than the PE Ratio.
• Rule of Thumb: Buy Good Growth stocks when the PEG < 1
• Be careful getting excited about low PEG cyclical stocks, Jim Slater used to only publish
PEG ratios for stocks that had at least 4 years of consistent growth.

Relative Strength
The relative share price performance vs the market > 0
(1.14/1.02 - 1)*100 = 11.5% Relative Strength
+14%
+2%
• One of the most powerful ‘momentum’ metrics - winners tend to keep winning.
• The most predictive timeframes to use for RS are from 6 months to 1 year.

Zulu Principle - additional rules
Slater liked to look beyond just the screen results
Slater liked it if a growth stock didn’t have any debt or liquidity issues:
• Gearing Ratio (Debt/Equity) < 50%
• Quick Ratio > 1
• Current Ratio > 2
Nice to haves:
• Evidence of share buybacks
• Dividend payers
Slater always looked for qualitative measures to back up the quant:
• Something New (new technology, new management, new events)
• Strong Management
• Competitive advantage (brand, patents, dominance in markets)

Subscriber Results
Ten thousand platform subscribers

I now make decisions that are far more grounded in data. My results
have improved significantly since I started using Stockopedia. I feel
more confident in my decisions and results beat market indexes that I
track.
I screen potential purchases according to Sector, StockRank,
RiskRating and Style. The overall result has been 2%, 7.6% and 7.6%
market out performance in 2015, 2016 and 2017 respectively. I think this
is pretty impressive given how hard it is to beat a total return index.
It's had a very positive impact in terms of being able to do research on
Stockopedia and my financial results have been far better as a result
of having that information and being able to make the best choices.
After - confidence & results
James
John
Nick

Awards & Reviews
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Shares Awards
Favourite Share Research Platform - 2017, 2018
Best Investment Software - 2016, 2018

Press and Professionals
“Stockopedia is a great place to scan for
new shares to buy - I use it myself.”
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company pages on Stockopedia are an
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David Stevenson
FINANCIAL TIMES

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StockRanks
Name Explanation Screen Rule
Basic Ranks
Quality Rank, Value Rank, Momentum Rank, Growth Rank. We do
not include the Growth Rank in our overall StockRank as we’ve
found it is less predictive of future growth than the Quality Rank &
Momentum Rank
> 75
Combo Ranks
QM Rank, VM Rank, QV Rank, GM Rank - these combine 2 of the
‘basic’ ranks into a single combo. i.e. QM = Quality & Momentum.
These are great ﬁlters for quickly ﬁnding candidate stocks across
both dimensions.
> 75
Composite Ranks
StockRank (Q+V+M) and the QVGM Rank (predates the StockRank
and incorporates the Growth Rank into the algorithm)
> 75

Classifications
RiskRating
We classify all shares according to their 1 year volatility.
Conservative, Balanced, Adventurous, Speculative, Highly
Speculative. It’s best to avoid Highly Speculative shares - yes they
might make you rich, but they also are far, farm more likely to make
you go bust.
Exclude “Highly
Speculative” shares
StockRank Styles
Focus on “winning” styles (super stocks, high flyers, turnarounds
and contrarians) and avoid “losing” styles (value traps, momentum
traps, falling stars and sucker stocks). Style Neutral stocks are
absolutely fine to own.
Exclude value traps,
momentum traps, falling
stars, sucker stocks.
Size Group
We provide 4 size groups - micro caps, small caps, mid caps, large
caps. It really depends what you are looking to do. Dividend
investors want stability and will avoid small & microcaps, while
growth investors just want to focus on small & mid cap shares.
Personally I avoid microcap shares as they tend to be speculative.
Exclude micro caps.

Quality
Return on Capital (ROCE)
Return on Capital Employed is the Operating Income divided by the total
capital employed in the business. The ROCE (or Rocky) is a good
measure of the profitability engine in a company as it shows the return
made on every piece of capital invested. Best to look for strong ROCE of
12%+. Also consider the ROC Greenblatt & the 5y Average.
> 12%
GPA (Gross Profits to
Assets)
This was made ‘famous’ by Robert Novy Marx. He proved that Gross
Profitability is the most predictive quality metric. High gross profitability
often explains why currently loss making stocks (like Ocado) have quite
good Quality Ranks. About 25% of the market have GPA greater than
30%.
> 30%
Piotroski F-Score
We use this as the Fundamental “Health Trend” indicator on StockReports.
Joseph Piotroski showed that high ranking stocks by his F-Score tend to
beat the market considerably. This is ranked out of 9, so it’s best to
screen for stocks higher than 6.
> 6

Value
PEG (Rolling)
The Price Earnings to Growth Ratio - popularised by Jim Slater and Peter
Lynch. Look for PEG ratios of less than one to find reasonably valued
growth shares - with earnings growth larger than the PE Ratio. I prefer the
Rolling version (as compared to the Slater version) as it doesn’t double
count the future earnings growth.
< 1
Earnings Yield
The Earnings Yield is basically the best measure of value of a company
and preferred by proper finance professionals. Our definition is the same
as that of Joel Greenblatt in his famous Little Book that Beats the Market
(EBIT/EV). A stock with an EY > 8% is probably in the cheapest quartile of
the market - which may be a good thing if you are a value investor, but
probably not if you are a growth or momentum investor!
> 8%
PE Ratio
I am only including the PE Ratio as it’s so popular. There’s a full slide on
the PE ratio elsewhere in the deck. Growth investors may be willing to buy
high PE stocks or ignore the PE completely. GARP investors will look
below a Rolling 1y PE of 20, while Deep Value investors may look for a
TTM PE of < 12.
< 20 (GARP)
< 12 (Value)

Avoiding Red Flags
Altman Z-Score
This measures bankruptcy risk. It’s often worth screening out any stock
that has a Z-Score of less than 1.8.
> 1.8
Beneish M-Score
This measures the earnings manipulation risk. In order to minimise the
likelihood of ﬁnding earnings manipulators in your screening results
exclude any stocks that have an M-Score greater than 1.78. It’s a bit
counter-intuitive as it’s good if this number is negative rather than positive.
< -1.78
Piotroski F-Score
I’ve duplicated this here as you can use this either as a ‘quality’ metric to
include the very best stocks in the market, or use it as a ‘red ﬂag’ to
exclude the worst ! As this is scored out of 9, if you exclude anything that
scores less than 4 you should stay out of the worst, deteriorating
fundamentals stocks.
> 4

Dividends
Yield (Rolling 1y)
The forecast rolling dividend yield. Obviously forecasts can be wrong, but
I find it very helpful to know what the expectations of the yield are protect
myself from any cuts with quality metrics. A good yield does depend on
inflation and prevailing interest rates, but currently a 3.7% yield is about
the median in the market.
> 4%
Dividend Cover (TTM)
This shows the number of times the trailing 12 month dividend payment
was covered by earnings. Frankly, anything less than 1 is a red flag, and
2x gives you some comfort.
> 2
Dividend Growth Streak
This shows the number of consecutive years of growth there have been in
the dividend - I like to see at least 3 or 4 years consecutive dividend
growth, ideally a lot more. For stocks with only a few years dividend
growth - check the StockReport - you want to avoid stocks with histories of
dividend cuts.
> 3

Growth Ratios
Name Explanation Suggestion
EPS Growth (Rolling 1y)
This is the 1 year forecast earnings growth figure. It’s standardised
across all stocks and shows the consensus earnings growth
expectations of stockbrokers.
> 10%
EPS Growth Streak
Measures the consistency of the company’s earnings growth. It
answers the question, for how many out of the last 5 consecutive
years has the company grown EPS. Jim Slater always looked for 4
year’s growth.
> 3
EPS Growth (Q on Q)
This shows growth of the most recent interim period vs the period
before. It’s a great way of finding accelerating stocks. I’ll sometimes
compare this growth rate with the previous year’s growth rate to find
accelerators. See CAN SLIM for a great example of this. Set it to
something smaller than the annual growth rate (as it’s only been over
a quarter or a half year period).
> 5%

Price Momentum
Relative Strength 
6m or 1y
This shows the ‘relative’ price strength of a stock versus the overall market
benchmark. Stocks beating their benchmark will have a “Relative
Strength > 0” over various timeframes. James O’Shaughnessy was one of
the ﬁrst to heavily study this effect in What Works on Wall Street. 6 months
to 1 year are the best timeframes for continuation of momentum as the
effect reverses over shorter (3m) or longer (5y) timeframes..
> 5%
Price vs 52w High
This is the price discount versus the 52 week highest price for the stock.
Stocks within 10% of their 52 week high will have a value of between -10%
to 0%.
> -10%
Price vs Moving Average
200d
This measures how far the last close price is from the 200 Day Moving
Average. Seek stocks above their moving average to ﬁnd stocks
trending upwards.
> 0

Earnings Momentum
(FY1 or FY2) EPS Estimate
Upgrade (1m or 3m)
This is a great ﬁeld. It shows the amount the brokers have upgraded their
1y (or 2y) forecasts for a stock in the last 1 month (or 3 months) as a
percentage. You can play around with the amounts, but generally 2%
upgrades in the last 1 month are signiﬁcant, and 5% in the last 3 month
are similarly.
> 2%
EPS Surprise
This shows stocks that have ‘surprised’ the market in their last (interim or
quarterly) earnings report. i.e. they’ve beaten the broker forecast. This is
powerful stuff and a great leading indicator of pride performance. Look
for a positive surprise - ideally a high surprise!
> 0

Liquidity, Risk, Size
Bid-Ask Spread
This measures the spread between the bid price and the offer
price. It’s a helpful basic measure of the liquidity. If you buy a wide
spread stock you will end up deep in losses after your first trade!
This is measured in basis points (100 basis points = 1% spread)…
so be careful of purchasing anything on more than a 5% spread. I
screen for 500bps as you can regularly ‘buy inside the spread’ if
you set tight limits.
< 500 bps
Volatility 1y
This is our own proprietary metric based on the 1 year share price
volatility. Frankly, anything that’s “Highly Speculative” according to
the RiskRatings should be given a huge bargepole… Frankly, I
don’t think it’s worth mucking about in stocks with high volatility - so
steer clear of 55%+ stocks.
< 55% (to avoid the riskiest
stocks)
< 30% (for more
conservative portfolios)
Market
Capitalisation (Mkt
Cap)
Personally, I prefer owning smaller companies. As Jim Slater once
said “Elephants don’t gallop”. Fishing in the £1bn and less part of
the market often finds some of the best smaller company winners….
unless of course you love the Amazons and Apples of the world.
This field is in millions.
< 1000m

Data Quirks, Modiﬁers, Streaks

What are Dual Lists?
There are many ‘dual lists’ that duplicate their listing on an
international exchange. This can help the company raise capital
from international investors. e.g. an Australian stock with a primary
listing on the ASX might choose to dual list in London to raise capital
from UK Investors. This duplicates the listing.
We exclude dual listed stocks by default as they can be unfamiliar
with local investors and often illiquid, but if you do wish to include
them you can click the checkbox as above.

Understanding the ‘modiﬁers’
The most popular forecast ratios
standardised as a Rolling 1 Year Forecast

Forecast & Historic “Modifiers”
Forecast Ratios
“Forecast 1y” - uses the analyst forecast data for the next fiscal
year end
“Rolling 1y” - blends the analyst forecasts from both the next fiscal
year end and the year after. Allows more accurate like for like
comparison across the market. 👍
Historic Ratios
“Last Year” - uses the last fiscal year end account data
“1y Ago” - uses the previous fiscal year end account data
“TTM” - this is the ‘trailing twelve month’ period for the company,
including any interim or quarterly reports since the last fiscal year
end. This is more up to date and allows better like for like
comparison across the market. 👍

Averages & Growth “Modiﬁers”
Multi-Year Metrics
“5y Avg” - this is the ﬁve year average of a ratio. e.g. P/E 5y Avg
“CAGR” - this is the ‘compound annual growth rate’ of a metric. 👍
Quarterly Metrics
“Q on Q” - this uses the latest interim (or quarterly) data and
compares with the previous interim (or quarterly) period. e.g. EPS
Growth Q on Q - for a company in Q4 will be the Q3 EPS Growth
over Q2.
“Q on PYQ” - this is the latest interim (or quarterly) data versus the
same period the year before. e.g. EPS Growth Q on PYQ - for a
company in Q4 will be the Q3 EPS Growth over Q3 the year before.

Streaks
Straight Streaks
e.g.
“Div Streak” - number of consecutive years a dividend has been
paid.
Growth Streaks
e.g.
“Div Growth Streak” - number of consecutive years the dividend
has growth.
These ﬁelds count the number of periods something has happened

“Rolling” Ratios
End
2018
End
2019
End
2020
End
2021
Current
Date
EPS
forecast
20p
EPS
forecast
30p
EPS
forecast
40p
1 year
ahead
Share Price
300p
What’s the 1 year Forecast Price / Earnings Ratio?
EPS = 1/4 of 2019 EPS forecast + 3/4 of 2020 EPS Forecast = 20 * 1/4 + 30 * 3/4 = 27.5p
“Rolling” Price/Earnings Ratio = Share Price / EPS = 300p / 27.5p = 10.9
1/4 3/4
Standardising the forecast ﬁnancial ratios of every company

Trailing Twelve Month (TTM) Ratios
Half Year
2018
Year End
2018
Half Year
2018
Year End
2019
Current Date
What’s the last 12 month sales (or earnings etc) ﬁgure?
Sum the sales from the previous 4 quarters (for quarterly reporting companies)
or the previous 2 half year periods (for interim reporting companies)
* Most US companies report quarterly.
* Most UK companies report on an interim basis.
Q3
2018
Q2
2018
Q3
2018
Trailing Twelve Month Period
* * * *
1 Year Ago
Standardising the historic ﬁnancial ratios of any company

Choosing a Strategy
Finding a stock screening strategy that ﬁts
your own psychology

Quality Value
Momentum
Quality
beats
Junk
Cheap
beats
expensive
Leaders
beat
laggards

Investors
Quants
Warren Buffett
Neil Woodford
Joel Greenblatt
Joseph Piotroski
O’Shaughnessy
Charles Kirkpatrick
Euguene Fama
Josef Lakonishok
Jim Slater
Naked Trader
“I like buying quality merchandise when
it’s been marked down.” Warren Buffett
“Trending Value is the
best performing strategy
since 1963.” James
O’Shaugnessy
Quality Value
Momentum
Traders
Bill O’Neill
Richard Driehaus
Mark Minervini
“It seldom pays to
invest in laggards.
Look for market
leaders.” Bill O’Neill
Mixed
Ben Graham
David Dreman

What type of
investing style
best ﬁts your
psychology?

If you want to have a better
performance than the crowd,
you must do things
differently from the crowd.
Sir John Templeton

Some great books
Some good books on screening & rule
based investing

Momentum All the metrics Growth
Good books on rule based investing

How to screen the market for the best growth & income stocks

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