We've Built Our Own Stock Screeners

After three months of strong coffee and a Bloomberg terminal, it's ready to go.

We started writing our views about stocks on Substack to 0 subscribers back in January. We’re now writing to more than 2,700. Even though we’ve had good feedback on our commentary and research, one question crops up a lot.

“When are you guys going to provide us with a list of the stocks you like and show us the ones you’re investing in?”

As we are not regulated to provide investment advice, we have to tread carefully here. But several months back, we hit on what we thought was the perfect compromise.

What if we built our own stock screener using our own filters that we’ve built on Bloomberg? 99% of our user base can’t afford to pay $2,000 a month for a Terminal. So, the screener would be a huge value add.

Each week, we can publish and update the results of the screener with a model for growth stocks, dividend stocks, value stocks and, finally, a special trading model for short-term ideas.

It was handy that in our three-man team, we had Robert, who has extensive experience in this area. So we left him to it, and after a couple of months of building and testing the models, he was happy with the end result.

What’s in the stock screener?

Let’s get into it. From the start, we’re happy to share the breakdown of the models.

We’ve built four:

• Dividend Stock Screener

• Growth Stock Screener

• Value Stock Screener

• Trading Screener

Starting with…

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Dividend Stock Screener

We apply eight screening factors to the dividend model. This should populate strong ideas for passive income generation.

Although we don’t have the length to run through them all here, let’s run through some of them:

Dividend Net Five-Year Growth Rate > 5%

We want companies that aren’t stalling in dividend payments, but rather that are growing them over the past few years.

Last Full-Year Dividend Payout Ratio Between 50-75%

A payout ratio too low could indicate that income isn’t a key priority for management. A ratio too high could make future payments unsustainable.

Current Free Cash Flow Yield > 10%

Free cash flow is a key metric that not only helps a business function day-to-day, but supports income payments to investors without hampering operations.

Last Day Trading Price > Price One Year Ago

We want to avoid stocks that have an artificially high dividend yield simply because the share price is falling.

Dividend Yield > 5%

Below this level doesn’t really make things that interesting in our opinion.

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Growth Stock Screener

We apply nine screening factors to the growth model. These are names that we feel could have strong share price appreciation in coming years.

Some of the factors include:

Last Full-Year Revenue Growth > 15% Prior Year

Naturally, we want to firms that have increasing demand, shown by higher top line revenue.

Last Full-Year EBIT Margin > 30%

Earnings Before Interest and Tax (EBIT) is a common figure used for assessing profitability. We want this profit margin to be high.

Current Full-Year PEG Ratio < 1.5

The Price/Earnings to Growth (PEG) ratio is a metric we like to try and find undervalued stocks. We set 1.5 as our benchmark.

Return on Common Equity > 10%

This is a fairly straightforward filter, as we want to see shareholder benefits already present.

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Value Stock Screener

We apply nine screening factors to the value model. These are names that we feel are currently trading below their fair long-term value price.

Some of the factors include:

Current P/E Ratio < 15

The Price to Earnings ratio is a good barometer to find a potentially undervalued idea. We go for less than 15 as a benchmark.

Current Price-to-Book Ratio < 1

An alternative value metric is seeing how the current share price compares to the book value of a firm. Less than 1 would be where we draw a line in the sand.

Current Price-to-Sales Ratio < 2

The price-to-sales ratio shows how much investors are willing to pay per dollar of sales. We filter for stocks with a ratio of less than 2.

Last Total Debt to Equity Ratio < 50

We don’t want companies that are underperforming due to high debt levels, so we screen out these stocks using the above ratio.

Current Dividend Yield > 3%

While we wait for potential share price appreciation, we like to find firms that are paying out some form of dividend.

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Trading Screener

We’ll be releasing this separately.

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What does this mean for you?

We know that our subscribers read our content as they are an investor in some form. Therefore, we hope that the models provide you with specific stocks that we like that you can then take away and review.

We can’t say that you should buy a stock flagged up in our model. Each investor is responsible for doing their own due diligence. But when you see what’s in the models (read on), you can see why we believe the models are sound and should add alpha to any investor.

We’ll be investing in the stocks that our models recommend and will happily provide updates on the performance throughout the year.

How can you access the screeners?

We’ll update our Substack homepage tab ‘Stock Screener’ every Monday. One week each month will see one model get updated, so over the course of a month, all four will get updated.

All of the screeners will only be available for our paid subscriber base. At the moment, this costs just £5 a month ($7).

As a paid sub, you’ll also get access to 100% of the rest of our weekly content. This includes our flagship publication, the Monday Top Trade Ideas.

The first screener will go live at 9 am Monday, January 1st. We are excited to see you there.