Friday, September 5, 2014

How I Pick Stocks for my Watch List

I use a stock screener that I have developed for Fidelity Investments Custom Screeners. You will see that I am looking for good growth over the course of several years with momentum gaining in recent years. I want a high book value and a low PEG ratio. The trick of my screen is in the criteria of finding stocks that are all of the aforementioned yet are in the stocks that are the lowest percent off their 50 day Simple Moving Average. This final criteria is what gives me the Beat Up for NO Reason stock screener. Well, there is always a reason and that's OK because those reasons, in the stock market are short lived, for the most part. And it won't be long until there is reason to own it. Especially considering the great balance sheet they usually have.

PEG Ratio [Lowest 60%]
Book Value Growth (5year avg.) [Highest 20%]
Earnings growth three years [Highest 40%]
Earnings growth five years [Highest 20%]
Percent price off 50 day SMA [Lowest 40%]
Market Cap [Mid Cap]

Finally, to check up on the stocks that show up, I look them up in Google Finance and on the left margin is a link to "Financials" (<click on that to see an example) once in this I find at the top "Annual" and select that as I want yearly reporting. The first page you see is the earnings year over year. I look for an ever increasing amount of earnings here. Quick and simple. Then I go over to  "Balance Sheet"  (<click on that to see an example) and look for the following. I'll use CYBX as an example.
What I look for is the Total Assets and then scroll down and look at Total Liabilities and then scroll down and look at Total Equity. TA-TL=TE  and we want that ratio to be no greater than 3:1. In other words.
If a stock makes it all the way to this point, it is included in my watch list. I usually keep my watchlist updated each month as they can fall in or out of the criteria in that amount of time. There are also new stocks that qualify that I don't want to miss out on.
Now, there are reasons that the price has fallen. We don't know this without further research. I will usually go the the individual stock's news and read as much as I can to find out what the reason for the price decline has been. Or maybe check to see the short sells which can give it negative reaction. But what I like about the stocks that show up on my screen, usually if they have short sellers out there trying to take advantage of it, they usually backfire because the company is strong and the shorts don't stick. This causes the those investors to cover their shorts, which in turn brings the price up. But those are details that exist that I don't pay too much attention to.
Finally, I use sophisticated charts that I developed to read the direction and momentum and reversals of each stocks price. Which is very complicated so I won't get into that here. But keep in mind that the charts are what drives my decisions most of all. I don't just get into a stock because it is on my watch list. There is a more perfect timing and it is revealed in the charts.

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