Two sets of stock selection methods

quantitative stock selection method

Use objective data to find the most neglected opportunities in the market, which are very high-quality stocks in the market, but have not yet risen, or which are extremely explosive stocks, but were delayed by some accidents, and finally The selected target can bring some help to your investment. Here are two sets of stock selection ideas. The first set is to look for those good companies with the best fundamentals, one top one, but they have not been able to keep up with the rise of the market due to some external reasons. Such stocks may become an opportunity to pick up misses in the future. The second set of stock selection ideas we mainly focus on those growth stocks. They had the best chance to unleash their potential in this round of valuation release, but they were not favored by the market due to some unexpected factors. Now their valuation Still at an absolute low level, such stocks may also have the opportunity to realize their explosive power in the future.

1. The first type of high-quality companies that have not had time to rise, the selection of this type of company has two cores.

One is that the fundamentals are good enough

The fundamentals are good enough, which requires reference to a lot of data and must also be combined with the current market environment. First of all, we must see that its financial data is healthy enough, and the company cannot have any risks worthy of our concern, such as leverage ratio, operating efficiency and a series of financial indicators. At least it can be guaranteed that the fundamentals of the companies we have screened out will definitely not have any problems. In addition to looking at the overall fundamentals, we also need to focus on the company's profitability, and this profitability must have a long enough history to prove that not only the current fundamentals are good, but there must always be Strong and stable profitability. In view of this, the selected quantitative indicator is ROE return on equity, which means return on equity in Chinese, which refers to how much profit each dollar of equity in the company can bring you. The higher the ROE, the higher the profitability and profitability of the company.

One is that its valuation is cheap enough

We also need to select companies whose valuations are cheap enough to keep up with the market growth, so we need to add two more price-related conditions. The first is that his stock price performance this year needs to be lower than the market average. , which is lower than the 14% increase of the benchmark 500. Such a company shows that it has not outperformed the market this year. The second is that its forward price-earnings ratio forward PE needs to be at least 10% lower than the median of the past five years. For such a company, we think its valuation is relatively low now. Finally, we add another criterion, selecting companies with a market capitalization greater than 100 b. Such companies have a certain scale. They are often more mature in business and can withstand market turmoil better, because what we do is quantitative Therefore, these companies need to have a certain room for error, and such a result will be more reassuring to our investors.

2. Select high-quality growth stocks.

The first is that its share price this year needs to outperform the market by a large margin. For growth stocks, it must outperform the market by at least 20%. The broader market has risen by 14%, so the screening criterion is to see that the stock price has fallen by at least 6% this year.

The second criterion is from the perspective of valuation. We need to see that the company's forward eover eid is at least 10% lower than the median of the past five years. This is the same logic as screening with PE, but PE cannot be used for valuation of growth stocks, because many companies have not yet achieved profitability, and Forward EB overe is more appropriate.

With these two indicators, we should be able to guarantee that this company is cheap enough. But cheapness is not enough, it must also grow, otherwise it will become what we often call a value trap. It needs to be seen that the company’s revenue forecast in the next two years must have a growth rate of more than 10%. Companies that can achieve such growth are considered high-growth companies, and such growth stocks will at least not fall into the value trap. With cheapness and growth, we also need to ensure that the fundamentals of this company are healthy enough and that it has sufficient anti-recession capabilities. This is the same as the above stock selection idea, but here it cannot be like It was so strict before, because growth stocks do not have such a high stability, so some adjustments need to be made here. In terms of fundamental screening, we keep it. The two points of bankruptcy probability and debt default probability are the two red lines of the company. Finally, regarding the market capitalization, the market capitalization selected here is greater than ten B points. With these standards, and the company’s revenue in the next two years is above 10%, the fundamentals of such a company are already guaranteed to a certain extent. , they are safe to say the least, it may still have some difficulties in future recessions, but at least we can rest assured that it will not have any major problems, and the prices of these stocks are very cheap.

Stock selection using this quantitative method can only be used as the first step in stock selection, but it cannot be used as the only criterion for stock selection. After these companies are selected, we need to conduct in-depth and systematic research before we can really judge their investment value.