Lot of people as me , “How did I found this new stock? ” whenever I recommend them some new stock whose name they have never heard before. There are 7000 listed companies in the Indian stock exchanges but in media only 10% are discussed which are mainly the front-line large caps and small mid caps stocks. There are many good fundamentally sound stocks that do not get media attention. They come in media only after they have multiplied. You can find such good stocks yourself with the help of screening tools that can filter the stocks based on certain parameters.
There are many screening tools but I like Google finance’s stock screener tool very much. Its free and easy to use. Here I will show you step by step how to use Google stock screener and apply the Graham’s recommendation to filter out the bad stocks.
There are two boxes in the screener tool in the left box you have to enter the minimum value and in the right one the maximum value.
How to get new stock ideas with Google stock screener
Step 1: Go to Google Stock Screener
Step 2 : Select country as India, Exchange as BSE and Currency as India Rupee. I am using BSE here because it’s the oldest exchange and many good companies are listed on BSE that are not listed at NSE
Step 3: We don’t want to deal with companies of very small size. In the market cap box enter 300 crore or just 3B which means 3 billion.
Step 4: Investment should not be done in the stocks which are priced too high. We are looking at the stocks that are fairly priced or which are at the bargain price. We check whether the stock is expensive or cheap using the financial ratio know as P/E ratio. Graham says stocks below the PE of 15 are good for new investment. Enter 5 in the left box and 15 in the right box. You can also enter zero but that will generate the stock list of companies having no earning. PE of zero means company is not earning anything.
Step 5: If you like companies that reward their investors by paying regular dividends then you can enter 1 or 2 % in the dividend yield box. After implementing all these things picture will be like this
Step 6: Lets apply some more filters. Click on ‘Add Criteria’ select price to book value and hit the ‘add criteria’ button. In the same way you can add other filters like debt/assets , current ratio, 5 year sales growth , EPS growth, profit margin etc
Step 7: We are looking for growing companies having good profit margin. For this we will add the 5 year earning per share (EPS) growth rate criteria and add the value 10-50 , this will show up the companies that have increased their EPS by at least 10% over 5 years period. Similarly we will add the 5 year revenue growth criteria and net profit margin criteria to be of at least 8% . This will filter out the stocks having low revenue growth and profit margin.
Step: 8 To make sure that company has sufficient capacity to pay the debts in adverse situations, we will use the debt to asset ratio. We will enter the value zero and 50 here, that means we want the companies which have either zero debt or their debt is no more than half the value of total assets.
The final picture looks like this
You can add/remove criteria as per your requirement. On applying these criteria I got the list of around 600 stock from 6300 somewhat listed BSE stocks consisting of all sectors. If I go sector specific the list will reduce further. This is a great tool for generating new stock ideas. One should understand that this generated list is not the guarantee of perfection. You should also check other fundamental and technical parameters before taking final decision on investment.
Abhishek is an Engineer MBA in Finance and Certified Research Analyst. He is an active trader and investor in the stock market since 2010. Follower of the philosophies of Warren Buffet and Peter Lynch in investing and trend following in trading.