Quicken Value Screen

The basis of value investing is finding good companies that are currently on the outs with most market players. This screen looks for value-priced stocks that are out-of-favor with analysts and mutual funds. The search verifies that passing candidates are indeed out-of-favor by requiring a weak stock chart.

Market Capitalization

Specify a minimum $250 million market capitalization. Value strategies usually lead you to mid- and large-cap prospects. It’s unlikely that companies smaller than $250 million market-cap would qualify; so don’t waste time analyzing them.

Price to Sales Ratio

Specify 3.0 maximum P/S You’ll probably find that most of your viable candidates will have P/S ratios below 2, so this requirement eliminates just the obvious misfits. Try reducing the maximum if you’re getting too many hits.

Analysts Consensus Ratings

Specify 2.2 minimum Analysts consensus rating values are: strong buy (1), buy (2), hold (3), weak sell (4), and strong sell (5). A 1 consensus rating means that every analyst covering the stock rates it a strong buy, and 3 translates to hold (meaning sell). The 2.2 minimum limits your selection to stocks rated between weak buy and hold, or worse. Since analysts rate most stocks at buy, or better, this requirement limits the results to firms out of favor with most analysts.

Current Ratio

Specify 1.5 minimum Current ratio is the company’s current assets divided by its current liabilities. Value strategies require financially strong firms. Candidates with lower current ratios are unlikely to pass your financial strength tests.

Long-Term Debt/Equity

Require 0.4 maximum The long-term D/E ratio compares a company’s long-term debt to stockholders’ equity (book value). The higher the ratio, the higher the debt. Low debt firms are your best bets. Try increasing the maximum if you don’t get enough hits.

Revenue

Specify $50 million minimum TTM revenue. You’ll often find companies showing up in your screening results that aren’t real companies, or at least they don’t have real businesses. Sales of $50 million over the last four quarters (trailing twelve months [TTM]) isn’t much for a public corporation, so this requirement keeps you from wasting time on companies with no sales.

Share Price

Require a minimum $5 share price. Real cheap stocks usually aren’t worth evaluating. What constitutes “real cheap” varies with market conditions and your own views. Many mutual funds won’t buy stocks trading below $5, so that’s a reasonable minimum.

Relative Strength

Specify a maximum value of 60 for relative strength. Quicken’s relative strength compares each stock’s price performance to the performance of all stocks over the past 12 months. A relative strength value of 90 means the stock outperformed 90 percent of all listed stocks. The recommended 60 maximum prevents the screen from turning up strong stocks. You want to find underperforming stocks that will become strong stocks after you buy them.

Percent Held by Institutions

Specify 5 percent minimum, and 60 percent maximum. Most mutual funds and other institutional buyers prefer growth stocks. Typically institutional ownership ranges between 40 percent and 95 percent for in-favor stocks, and falls below 40 percent for out-of-favor value stocks. However, institutional owners aren’t required to report their holdings more than twice yearly, so Quicken’s ownership data could be dated. That would be especially significant if the subject company’s fall from grace happened recently. Although you’re looking for out of favor stocks, you don’t want them so far out of favor that no institutions own them, and the 5 percent minimum precludes such stocks. Try increasing the maximum if you don’t get enough hits, and reducing it if you get too many.

Results

I turned up 57 candidates when I ran the screen during a weak market when analyst ratings were unusually pessimistic. Changing the maximum relative strength to 50 and the maximum P/S ratio to 2.5 reduced the number of hits to 33.