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3 Ways to Screen the Stock Market for Winners

There are over 700 stocks listed on the Singapore Exchange and more than 3000 stocks on the American market. With such a large number of stocks, finding that single stock to add to our portfolio can be a daunting task. When I first started investing, it felt very much like finding a needle in a haystack.

Fortunately, along my investment journey, I have found three useful methods that can help me narrow down my investment choices and make finding that winning stock much easier.

Screening for value

One of the most common methods that investors may use to find undervalued stocks is by using stock screening tools. With the Internet, we can now easily find companies that have low Price-to-Earnings (P/E) multiples or are trading below their Book value (P/B).

This can be a great first step to narrowing down to stocks that can be undervalued by the market. There can be many reasons why these stocks are trading at a discount. Some of which could be unwarranted like short-term temporary business headwinds or insufficient analyst coverage. These factors could lead to these stocks not garnering enough attention and hence might be trading at discounts to their fair value.

Of course, not all companies that are priced at low multiples are good long-term investments. Many of these companies have poor valuations due to fundamental flaws in the company like poor management, poor business models, or a history of poor returns on investment or even losses.

It is therefore vital to do the necessary due diligence on the companies that are trading at discounts to their counterparts.

Top-down approach

Some investors try to search for companies within a specific industry that they think have great growth potential. One such industry could be the technology industry. Technology has come a long way in recent years, and the Internet and E-commerce industries are growing at astronomical rates.

Investors who wish to invest in this industry can screen for companies which operate in the particular industry and hence narrow their investment options in that way.

As usual, investors need to realise that not every company within an industry will perform equally. Some companies may have better fundamentals and better management. Hence, companies that operate in the same industry can have very different business prospects.

Stock recommendation services

Probably the easiest way to find good stocks is to use a stock recommendation service that does all the heavy lifting for you.

There are many services out there that provide stock picks. However, it is important to note that not all services are reliable. Investors should find a stock recommendation service that has a long and sustained history of finding stocks that beat their corresponding index.

The Motley Fool, of course, is one such service that provides stock recommendation on a consistent basis and has a solid history of beating the market.

The Foolish bottom line

Sieving through the stock market has become much easier with the accessibility of information through the Internet. Investors can use these three tools that can narrow our investment choices, thereby making their investment process much simpler.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.