One of our readers recently asked the following questions:
"I am a Gold Level subscriber to Sabrient and use MyStockFinder to find investment ideas that meet my style. First of all, love the product. I wonder if you could give us some advice on searches you or others at Sabrient have found productive. I am a Value investor at heart and use a L/S approach for hedging. Which reminds me to mention that a search or list of Short candidates would be much appreciated. Best and thanks as always."At Sabrient our goal in developing MyStockFinder was to take the FEAR, PANIC, and GREED out of the decision-making process. Today, I want to show what criteria is used to generate our list of prospective stocks for the Rock Solid Yields portfolio. To help follow along with the questions, you can open the link to MyStockFinder Questionnaire to view the questions, if you are already a Gold Level subscriber. To learn more about What We Do at Sabrient, or our Methodology, or our Scientific Approach then just follow the links.
1. For the first question, we choose stocks which have a Sabrient Rating of Strong Buy or Buy by Sabrient .
2. For RSY, we do not discriminate based on market cap during the selection process. The stocks generated by MyStockFinder tend to be pretty evenly divided between market caps, but question number 2 gives subscrivers the ability to target a specific market cap. Although I don't eliminate stocks by market cap in the RSY filter, it is important to consider the market cap when deciding on investment strategy. For example, small-cap and especially micro-cap stocks have no option market or are very limited in scope. Additionally, small cap stocks have been outperforming other caps recently and this question allows us to narrow our focus to the cap which is performing the best at given times.
3. Question number 3 holds the key to our selection process. We set income the highest (5) and value at 2. Obviously income in dividends is one of our greatest concerns and thus importance for this question is moved to 10. The weighting of importance for each question tells MyStockFinder what relative weights to include in the filter. This question is rated as most important since RSY is looking for great value stocks. It is important to understand that MyStockFinder doesn't use sequential elimination like most Stock Screeners. Sabrient believes that weighting factors is a better means to the end as there may be stocks just on the border of some criteria that would be eliminated by other programs but key factors that are important to the investor could give cause to consider a stock that might otherwise be eliminated.
4. On question 4, RSY selects 5 for quality of earnings, strong balance sheet and strong fundamentals and 2 for both group strength and long-term technical strength. I like to weigh the importance of the top three factors at 4. In my last RSY post, I talked about the importance of at least one of the Sabrient scores on the Sabrient Ratings Reports showing strength in either earnings score, balance sheet score or fundamentals score before being a candidate for the portfolio.
5. For question 5 I use an importance of 5. Analyst's revising their forecast higher is an indication that the stock is ripe for increased valuation as expected earnings are predicted to increase in the future. We certainly want to pick a company that is expected to grow, maintain and eventually increase dividend payouts.
6. On question 6 we move the slider to 7. Insider buying is an excellent indicator of a stock that may be undervalued. There are many reasons to sell a stock for an insider but one very important reason to buy and that is he/she thinks the company is priced too low and should increase in value.
7 and 8. Neither one of these questions is adjusted in the filter for RSY. Although we prefer low beta stocks (stocks that rise and fall less than the market), this has not been an issue so far. On these two questions, we have mostly just considered the whole package of attributes on the stocks.
9. This filter is an absolute screening criteria like question 8 on sectors and question 2 on market cap. That is, the stock either meets the criteria or is not included in the selection. Most stock selection tools available use these types of screening tools. If you run MyStockFinder and only get a few stocks meeting your criteria then it is important to change the absolute screening questions to be broader. For question 9, we only set the price to a minimum of $5.
I hope this helped in understanding the MyStockFinder search tool and some of the methods on how to use it. MyStockFinder is highly flexible and allows the user to set the filtering based on their unique investment desires. For those who would rather follow a virtual portfolio where much of the searching is done for you, read about them at Select Opportunity Portfolio and Investor's (NYSE:H)Edge Portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: No positions mentioned.