Dustin Allen's  Instablog

1. Adequate Size
I look at companies that have annual revenue larger than 100M preferably for the majority of the past ten years. This keeps us out of micro cap territory, but exposes us companies with growth potential.

2. A Sufficiently Strong Financial Condition
Current ratio greater than 2

3. Earnings Stability
Some positive EPS earnings in the past ten years.

4. Dividend Record
Dividend payout for at least ten years is stellar, but not mandatory. A dividend is required though.

5. Earnings Growth
EPS has grown at least 33% over the last ten-year period.

6. Moderate Price to Earnings Ratio
P/E ratio using the last three years avg EPS.

7. Moderate Ratio of Price to Assets
Price/Book ratio less than 1.5

On the surface this looks like a basic value screen, but digging deeper shows us some things

The earnings stability requirement is the first bottleneck. This eliminates any negative earners over the past ten years. With the bad year everybody had in 2008/2009 this really drops out companies that could not stand up to the recession.

Earnings growth is one that surprises me from time to time. 33% over ten years sounds pretty easy (a CAGR of 2.89%) but it still knocks a few out. We want companies with steady growth; if it can't grow at least 3% a year is it really that good.

P/E ratio less than 15 is a value stalwart. But we add the twist of using the average of the last three years earning instead of the TTM data. The average data makes this a little tighter (usually my P/E ratios run higher than the TTM).

Finally, the dividend record drops off the companies without sufficient cash and financial stability to pay shareholders on a consistent basis, or perform share buybacks.

After running a basic screen at my broker, I run the results through the BWB analysis sheet to see who makes the cut. The last group was cut from 45 to 2 stocks that made the cut. Not the cut for automatic investment, just the cut for further research.

Remember, this is a slow methodical process. To get the returns desired from our investments, we are looking for select companies at fair (or undervalued) prices.