A quant’s view of the stock market

By Richard Tortoriello
When researching stocks, every investor faces the same dilemma: Top down or bottom up? The first approach pinpoints the best-managed stocks in the top sectors and industries, and the second method first digs into the numbers to identify stocks that meet strict performance criteria — i.e., high earnings per share (EPS), strong price momentum, and cheap valuations.

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Suggested fundamental and technical criteria for article by Richard Tortoriello

 

Unfortunately, there are no free online stock screeners that filter by the exact criteria discussed in Richard Tortoriello’s article, “A quant’s view of the stock market,” Active Trader, May 2009.

          However, there are several Web sites that screen for similar metrics in profitability, momentum, and valuation categories (listed below)

 

1. Profitability:

 

Look for EBIT-to-invested-capital ratios of at least 20 percent.

 

EBIT – Earnings before interest and taxes.

          Vs.

Total invested capital – The sum of stockholders equity plus long-term debt, capital lease obligations, deferred income taxes, investment credits and minority interest.

 

2. Momentum:

 

Look for stocks trading near their 52-week highs (or lows)

          Formula = (current price – 52-week low) / (52-week high – 52-week low)

 

3. Valuation:

 

Look for stocks whose cash flow greatly exceeds the cost of capital investment.

 

Cash flow – Net income plus depreciation, depletion and amortization.

        Vs.

Capital expenditures – The sum of additions at cost to property, plant, and equipment and leaseholds, generally excluding amounts arising from acquisitions.

 

Free online stock screeners:

MSN

http://moneycentral.msn.com/investor/finder/predefstocks.aspx

 

Yahoo Finance

http://screen.yahoo.com/stocks.html

 

CNBC

http://www.cnbc.com/id/15839076/site/14081545/

 

Trader Charles Kirk’s favorite stock screeners (paid and free):

http://www.thekirkreport.com/2008/02/top-10-favorite.html

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