How to Scan for the Best Growth Stocks

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Finding the best growth stocks to invest in really begins and ends with what makes the most sense…identifying those stocks with the best earnings, the best sales, and that are part of the current leading sectors. You can do this for free if you’re willing to put in the time and effort to build the appropriate scans.  In the following post I’ll show you How to Scan for the Best Growth Stocks, how to do it for free, how I used to scan, and how my hours of scanning and filtering have evolved into a single push of a button!  

I like to scan in two phases:

PHASE 1: Run separate highly specialized scans to capture the best of the best stocks in each category.

PHASE 2: Run an “Ideal Screen” over the stocks passing Phase 1 to ensure I have only the best of the best candidates.

 

PHASE 1:

The scans below are the scans that I use every week. With some effort, most of these scans can be run one at a time using a free scanning tool called Finviz.com. For quite a while I was running these scans in an all-in-one market research tool called MarketSmith. Now that we’ve developed our own market research tool called ChartYourTrade MRI (Market Research Intelligence) I run these scans using that.

 

The following scans are the scans I’ve found most meaningful and run on a weekly basis:

  • Accelerating Earnings/Sales
    • Accelerating % change in quarterly EPS for each of the past 3 quarters
    • Accelerating % change in quarterly Sales for each of the past 3 quarters
    • % change in latest quarter’s EPS vs. same quarter prior year = 25% or more
    • % change latest quarter’s sales vs. same quarter prior year = 25% or greater
    • Market cap = $500 mil or greater
    • Current price = $15 or greater
    • Current price in relation to 52 week high = no greater than -35%
  • Relative Strength near 52 week highs
    • RS = no more than 5% off 52wk high
    • Current price = $15 or greater
    • Current 50-day average volume = 200,000 or greater
  • Price near 52 week highs
    • Current price in relation to 52 week high = no greater than -5%
    • Current price = $15 or greater
    • Current 50-day average volume = 100,000
    • RS = no more than 5% off 52wk high
  • Sector Leaders
    • Company’s Sector rank = top 1/2 or better vs all other sectors
    • % change in latest quarter’s EPS vs. same quarter prior year = 25% or more
    • % change in fiscal year EPS vs. prior year, last reported year = 0% or greater
    • % change in fiscal year EPS vs. prior year, 1 year ago = 0% or greater
    • % increase in next quarter’s EPS estimate from same quarter prior year actual EPS = 15% or greater
    • EPS have been accelerating over the latest 3 quarters = yes
    • Annual % EPS growth rate of last 3 years = 25% or greater
    • % change latest quarter’s sales vs. same quarter prior year = 25% or greater
    • annual % sales growth rate of last 3 years = 25% or greater
    • Current price = $15 or greater
    • Current 50-day average volume = 100,000
    • Pre-tax annual margins (latest fiscal year reported) = 18% or greater
    • ROE (latest fiscal year reported) = 17% or greater
  • Outstanding EPS
    • Accelerating % change in quarterly EPS for each of the past 3 quarters
    • % change in latest quarter’s EPS vs. same quarter prior year = 50% or more
    • % change in fiscal year EPS vs. prior year, last reported year = 1% or greater
    • % increase in next quarter’s EPS estimate from same quarter prior year actual EPS = 15% or greater
    • Annual % EPS growth rate of last 3 years = 25% or greater
    • Current price = $15 or greater
    • Current 50-day average volume = 100,000
  • Outstanding Sales
    • Accelerating % change in quarterly Sales for each of the past 3 quarters
    • % change latest quarter’s sales vs. same quarter prior year = 50% or greater
    • annual % sales growth rate of last 3 years = 25% or greater
    • Current price = $15 or greater
    • Current 50-day average volume = 100,000
  • Increasing Fund Ownership
    • % of the number of mutual funds owning for current quarter vs. previous quarter = 10% or greater
    • Increasing fund ownership for the past 3 quarters or more
    • % of stock held by management = 1% or greater
    • Current price = $15 or greater
    • Current 50-day average volume = 100,000 or greater
    • Market cap = $500mil or greater
  • Recent IPOs w/ Accelerating Earnings
    • EPS, trailing 4 quarters is greater than 0
    • Current quarter EPS is greater than same quarter prior year EPS
    • % change in 2 quarters ago EPS vs same quarter prior year is greater than 0
    • IPO Date = within the past 2 years
    • Current price = $15 or greater
    • Current price in relation to 52- week high = no more than -15%
    • Current sector rank = top 50% or greater

 

I prefer to run separate specialized scans as they help narrow the focus of these highly specialized categories and present only the best of the best candidates within them.

 

As I run these scans I’ll take the results and dump them into one large list. Of the entire Universe of Stocks (approx. 8,000 stocks) these scans typically narrow it down to about 300-400 candidates. Most list management software allows you to remove duplicates automatically. If you’re not interested in purchasing additional software and are handy with Excel, this tutorial provides an easy to follow explanation on how to filter for unique values https://support.office.com/en-ca/article/Filter-for-unique-values-or-remove-duplicate-values-d6549cf0-357a-4acf-9df5-ca507915b704

 

While these scans have narrowed down the field of interest to about the top 5% of stocks in the market, 300-400 candidates per week is still a LOT of candidates to review for most people. To help narrow our focus further, I’ve developed what I like to call an “Ideal Screen” and will put these top 300-400 candidates through it.

 

 

PHASE 2:  

From William O’Neil’s book “How to Make Money in Stocks” we learn the elements that the biggest winning growth stocks in history had, the ones the that moved over 1,000%, BEFORE they made their monster moves! Each of the Monster Stocks discussed had most of the following elements:

  • % change in latest quarter’s EPS vs. same quarter prior year = 25% or more
  • % change in fiscal year EPS vs. prior year, last reported year = 0% or greater
  • % change in fiscal year EPS vs. prior year, 1 year ago = 0% or greater
  • % increase in next quarter’s EPS estimate from same quarter prior year actual EPS = 15% or greater
  • EPS have been accelerating over the latest 3 quarters = yes
  • Annual % EPS growth rate of last 3 years = 25% or greater
  • % change latest quarter’s sales vs. same quarter prior year = 25% or greater
  • annual % sales growth rate of last 3 years = 25% or greater
  • Company’s Sector rank = top 1/3 or better vs all other sectors
  • Market cap = $500mil or greater
  • % of the number of mutual funds owning for current quarter vs. previous quarter = 1% or greater
  • % of stock held by management = 5% or greater
  • Current price = $15 or greater
  • Current price in relation to 52 week high = no greater than -15%
  • Current 50-day average volume = 100,000
  • Pre-tax annual margins (latest fiscal year reported) = 18% or greater
  • ROE (latest fiscal year reported) = 17% or greater

 

Taking these Ideal elements and determining by what percentage the stocks that passed Phase 1 pass the Ideal Screen leaves us with only the best of the best candidates.

 

Typically I like the stocks that I trade to pass this Ideal Growth Stock Screen by at least 70% but will sometimes relax it to 60% or sometimes even 50% depending on the circumstances of stock. For recent IPOs (within the past 2 years) I will often lower the bar to 60% to help make sure an otherwise strong young company doesn’t get weeded out. For stocks with an outstanding story (such as TSLA during its 2013-2014 run) I will occasionally lower the bar to 50%.

 

Running an Ideal Scan of your own: 

FREE: It is POSSIBLE to run an ideal scan of your own for free but it will take a great deal of time and effort. I haven’t found any free software capable of running a user-defined checklist over a stock and seeing by what percentage it passes or fails. Without the help of additional software or a database of your own, you can take the elements of the ideal scan, put them into a checklist in Excel, and manually check them. Doing this for 300-400 candidates per week will likely take up your whole weekend. I don’t know about you, but my time is worth paying a few extra bucks to save a full weekend’s worth of labor.

 

AMBA 2015-05-01 at 12.00.21 PMOld Way: MarketSmith has a nifty “checklist” feature, which allows any scan you create to be used as a checklist, and you are able to see by what percentage each stock you bring up passes this checklist. If you’re already a MarketSmith subscriber, you can load the Ideal Screen parameters in and use them as a checklist. You will still need to manually tab through each stock on your list to see by what percentage each passes (you can’t filter by a certain percentage). Checking 300-400 candidates would take me about an hour or so.

 

For those of us who are not MarketSmith subscribers, it isn’t cheap. MarketSmith runs $999/year for the base plan. If you go for the add-ons (Growth 250 and Pattern Rec) it runs $1,507/year.

 

Investors.com 2015-05-01 at 12.06.14 PM A Cheaper Way: For those looking for a cheaper alternative, Investors.com does offer an “IBD Checkup” which allows you to enter any stock and see how it passes their proprietary “IBD Checkup” list. Stocks pass or fail with a series of green, yellow, and red balls for each checklist item. You can’t export the checkup so you will still need to manually tally the number of green, yellow, and red balls.

 

A subscription to Investors.com starts at $199/year. You will save a fair amount of time over the free option mentioned but it is still labor intensive and will likely take a full day to tally a list of 300-400 candidates.

 

All scan 2015-05-01 at 12.15.23 PMBlending the best of both worlds: One of the things that has allowed me to be successful in the market while still having a separate full-time career, developing ChartYourTrade.com, maintaining a home, and having time for family and friends, is finding ways to do routine tasks such as scanning for the best growth stocks and running ideal screens over them as quickly and efficiently as possible.

 

For about 6 months we worked with the team over at OptionSamurai.com to develop a tool capable of running all of the individual highly specialized scans we discussed earlier, overlaying our Ideal Screen, filtering our Ideal Screen based on whatever percentage we want, and automating it all to do it at a single click of a button. What takes a full weekend to do for free or what still takes a couple of hours to do with high-end software, we have widdled down to a second!  We call this tool ChartYourTrade Market Research Intelligence or simply ChartYourTrade MRI.

 

ChartYourTrade MRI is only $19/month.  

Try it for a full month only $1!  Use coupon code “1dollarscan” 

Click here to start your trial now.

 

AMBA 2015-05-01 at 12.15.29 PMIn addition to everything mentioned previously, ChartYourTrade MRI also provides the following:

  • Live streaming charts
  • Industry Group Rotation Reports
  • New Highs vs New Lows Reports
  • Monitor the Expansion/Contraction of the list week to week (helps identify market health)
  • Export Lists to Excel

 

Group Rotation 2015-05-01 at 12.16.04 PMNH NL 2015-05-01 at 12.15.42 PM

 

 

 

 

 

 

 

 

 

 

 

Founder of ChartYourTrade.com

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