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Screens for Great Stocks

A few ideas on how to quickly focus on a few promising investments.

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Some folks, myself included, are addicted to stock screens. So when the market was down in the wake of September 11, I did some quick screens to come up with a list of buy candidates. I searched for stocks using the following criteria:

1. Sector: Technology 
2. Market Cap: Greater than $2 billion 
3. Revenues TTM: Greater than $2 billion
4. Financial-Leverage Ratio: Less than 3.0
5. Morningstar Rating: 5 stars
6. Price/Cash Flow: Less than 20
7. Percent Below 52-Week High: 50%

In other words, I wanted to pick up some beaten-down stocks in the tech sector--an area of the market I shunned during the go-go days of 1999 and 2000 because it was too expensive for my taste. I figured if I’m ever going to get technology exposure, now’s the time to do it. To find some acceptable stocks, I focused on established companies (those with market caps and annual revenues of at least $2 billion), good balance sheets (shown by the low financial-leverage ratios), and beaten-up share prices (high star rating, low price/cash flow, and a stock price well below its 52-week high).

Haywood Kelly, CFA has a position in the following securities mentioned above: TWX, DELL. Find out about Morningstar’s editorial policies.