3 Screening Criteria To Help You Find Hidden Gems

The stock universe is huge. In Singapore alone, there are more than 700 listed companies, making it practically impossible to go through each individual stock thoroughly. Therefore, using screening strategies to help you narrow your investment options is a useful way to help separate the wheat from the chaff.

Over the years of investing, I have found three simple search criteria that have helped me narrow my investment options to stocks that I believe have gone under the radar and can pose good value investments.

Search criteria 1: Few analysts covering the stock

With so many stocks in the market, not all are actively covered by investment analysts. The stocks that are not covered by analysts can sometimes prove to be hidden gems that can make wonderful investments once the broader investing community finally begins to take notice.

Of course, stocks with little coverage might also pose more significant risks as retail investors may not be able to find information about the company easily. Investors should, therefore, tread carefully when looking for such stocks.

Search criteria 2: Revenue growth

A company’s historical track record can speak volumes about its management and future runway for growth. A company that has consistently managed to grow its top line over the years may mean that it is operating in a growing industry or the company has actively managed to expand its market share. Both factors are decent predictors of the future performance of the company.

Search criteria 3: Valuation

Finally, you should screen for stocks with decent valuations. There are two valuation metrics that I commonly look out for.

First is an undemanding price-to-earnings ratio. Value investors should look for stocks that trade a low a price-to-earnings multiple. Some stocks may be unfairly trading at discounts to their peers because they may not be well known or are currently facing short-term fixable challenges.

The other metric I look out for is the price-to-book ratio. Investing legend, Benjamin Graham, promoted investing in stocks that trade at a discount to their book value. As such, screening for stocks with PB ratios below one can be an excellent place to start.

The Foolish bottom line

Screening is a useful way of narrowing your investment options to under-the-radar stocks that can outperform the overall market. Hopefully, these three screening criteria can help you find hidden gems that can boost your investment returns.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better. 

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