It’s always tough to come up with an investment idea, even if stocks, in general, appear cheap. There are many factors to analyse, and understanding and evaluating the business is just the first step.
With such a large universe of stocks out there, how does one go about filtering them such that you only focus on ideas which may be viable? Here are three effective methods which I use to screen for ideas.
Screen For Stocks Hitting 52-Week Lows
The website of our local bourse has a StockFacts section which allows investors to screen for companies with certain attributes.
The screen allows one to filter out companies which have recently hit their 52-week lows in share price, and though some of these declines may be totally justified, there is a possibility that the baby has been thrown out with the bath-water. The astute investor should sift through the list of stocks hitting their year-lows to assess which may offer good value and a margin of safety.
Still on StockFacts, investors can also screen for particular attributes which are important for their investment filtering.
Such criteria may include ROE (return on equity), profit margins, revenue growth or dividend yields just to name a few. This level of screening acts as a useful tool to look for good investment ideas, even though the method is mostly quantitative. Investors can even set the limits for each attribute (i.e. choose a range) which offers flexibility in the screening process. The tool also includes attributes for valuation which gives investors an idea of whether a stock may be cheap or expensive.
What Renowned Investors Are Buying
A third method for getting ideas is to observe what renowned value investors are purchasing for their companies, funds or personal portfolios.
Such investment gurus (e.g. Warren Buffett and Seth Klarman) have a stellar track record and a proven investment thought process and philosophy. Therefore, screening through what they had purchased is a good starting point. Remember to do your own due diligence on the companies and not to blindly mimic their portfolios.
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.
The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.