Screening for Tomorrow’s Stock Market Winners

by Wayne A. Thorp, CFA

Screening For Tomorrow’s Stock Market Winners Splash image

For most of us, stock screening is about finding stocks with strong future prospects. In other words, we are trying to find future winners.

The question is, what does it take for a stock to become a winner? The investing landscape is littered with studies that attempt to answer this question. Many of these studies try to pinpoint winning characteristics that can be used to identify future stock market winners.

One of the most well-known stock studies was undertaken by William O’Neil, who analyzed the common traits of the 500 biggest stock market winners dating back to 1953 and formed the basis of the CAN SLIM screening methodology. Due to its strong performance since AAII started testing it in 1998, the CAN SLIM approach has become a favorite among our members. However, this is not the only stock screen we track that focuses on the winning characteristics of stocks.

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Wayne A. Thorp, CFA is a vice president and senior financial analyst at AAII and editor of Computerized Investing. Follow him on Twitter at @AAII_CI.


Henry from California posted over 2 years ago:

Are you guys serious! You call this investing. When the passing stocks trade less than 500 shares per day and sometimes even less or nothing at all, where is the market.

James from Virginia posted over 2 years ago:

There is disagreement between the first trading rule, and the first sentence following the list of passing companies.

Secondly, one O'Neil's rules missing from the scan's trading rules is that one should not buy stock priced less than $20. That would eliminate four of your passing six stocks, if it were.

Wayne from Illinois posted over 2 years ago:

The Stock Market Winners screen looks for a P/B of no more than 1.5, which is what this sentence says: "Unlike O’Neil’s CAN SLIM approach, which focuses on earnings and price momentum, with no value elements, the cornerstone of the Stock Market Winners approach is a price-to-book-value ratio of no more than 1.5." It says that value is a component of the Stock Market Winners screen, unlike the CAN SLIM screens.

Also, this is not an O'Neil screen. It is based on analyzing the characteristics of a list of stocks published by O'Neil in the 1980's. Wayne A. Thorp, CFA, AAII.

John c from Illinois posted over 2 years ago:

I cannot see any reference to dividends, dividend cover, or history in paying a sustainable improvement in income for shareholders. It might be old fashioned but please show me the money !!

Larry d. from Colorado posted over 2 years ago:

Today FIRT has had no trades, BFED has traded 1,603, FIFS no trades, CCFN 965 shares traded today, HBIA no trades and TAYD 6,981 shares traded. Come on. Lets get realistic with these screens.

Wayne from Illinois posted over 2 years ago:

We do not advocate the passing companies as a "buy" or "recommended" list. Reinganum did not quantify a minimum trading volume requirement for this screen. However, as you point out, it is important to perform due diligence prior to buying a stock to see if you are buying into a potentially thinly-traded issue. Wayne A. Thorp, CFA, AAII.

Donald from New York posted over 2 years ago:

My idea of a stock market winner must include a record of sustainable growing dividends.

Werner from Pennsylvania posted over 2 years ago:

You cannot perform "due diligence" on this screen after eliminating thin trading, low prices, high turnover, etc. There is nothing left.

William from Maryland posted over 2 years ago:

FIRT doesn't even show on IBD. I remember IBD one saying that they generally don't look for stocks under $15 because the institutional investors aren't interested in those.

Also while margins have improved, sales growth has dropped 71%. This is why the stock has a low P/S and its justified. Its also an OTC stock which most folks probably don't look at and consider junk. Buying this one is like buying a lottery ticket.

I've found that IBD looks for winning stocks with strong recent sales growth and margin growth. when you use that strategy, the screens that you get will show up on IBD with high scores.

Jeffrey from New Jersey posted over 2 years ago:

Hey everyone,
Just letting you guys know I also belong to and that sight is more up to date and pinpoint with Tuesday and Thursday picks but mostly all with market cap under 100M. A few of their monsters they had were USANA life sciences (USNA and RRC). I signed on here cause I like information from all angles but I'm definitely getting discouraged when I see such lightly traded picks and month old info. Ahh, $29 bucks is like the commission I used to pay on my shares of JDSU, lol.

Terry from Missouri posted over 2 years ago:

I like the returns of this screen. When I read the article that the screen was based on, the holding period was meant to be two years. The original strategy was designed to find turnaround companies on the verge of breaking out. To what do you attribute the high turnover of this screen? Are there companies that have stayed on the screen for long periods of time? Is this historical information available?

Tariq from New York posted over 2 years ago:

As others have commented, the low volumes on these stocks makes them unacceptable for any serious investors. "Do your own due dilligence", yes, but on these you just wasted precious time.

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