Stock Screening Cheat sheet

For any stock of any sector, following criteria should be considered:

PE Ratio:

0-10 - means the company is undervalued, and its earningsis likely to go down.
11-17 - this is considered as a fair, stable range of PE.
18-25 - the company is overvalued. Earnings have gone up substancially, in the recent times.
> 25 - means the investors have very high expections about the growth of this company.

Price to Sale Ratio: should be < 1

PEG Ratio: should be < 1

Price to Book Ratio: should be < 3

Price to Cashflow Ratio: should be < 15

EPS Growth: should be > 25

 Disclaimer: I have written this cheat sheet for my own purpose. Please do not use it as an advice.

High Dividend Yield Stocks

 High Dividend Yield Stocks

Dividend-paying stocks have two advantages:

- Capital Appreciation through Stock price gain

- Regular dividend payments

Usually, the stable, cash-strong companies are the ones that pay the dividends. These stock are less volatile, and can endure the market downturns.

Dividend Yield is the metric used to determine how much dividend a company is paying.

Formula is:

Dividend Yield (%) = Annual dividend payout per share / stock price

Example: Annual dividend of a company is $2.5 and its stock price is $50. Then, 

Dividend yield = 2.5/50 = 5%

Dividend can be reinvested in the stocks of the same company.

While screening the stocks, we should look at the dividend yield history of a stock. This is because, a company might provide a high yield, just to attract the investors. It is important to see if the history of that particular stock.

Tax Considerations: Generally, the stock dividends are taxed at Capital Gain tax rate. 

Exception: REIT dividends are taxed at the regular income rate, which is much higher than Capital Gain Tax rate.

Stock Picks

According to an article on MSN Money (http://money.msn.com/investment-advice/buffetts-7-best-stocks-today-brush.aspx?cp-documentid=6836571), following are the safe, stable stocks.

Wells Fargo
Wal Mart
Coca Cola
P & G
American Express
UPS
Johnson and Johnson
 

Stock Screening

Stock Screeners

The best way to determine which stocks to buy is: using online stock screeners. There are a myriad of stock screeners available on the internet. Almost every financial portal will have at least one stock screener: for example, yahoo, google etc.
Some of the stock screeners are paid, and some of them are free. For a beginner like me, I believe a free screener would be a good start.

A typical screener will let you set following parametes:
- Sector/Market
- Stock-related data like: price, dividend, revenue, profit margin, volatility
- Ratios: PE, PS, PB etc

Many sites provide pre-defined screeners, where these parameters are already specified. For example: a site may have defined screeners for Solid Stocks, Large Cap High growth stocks, High Dividend stocks and so on. This makes your life simpler. All you have to do is to pick the screener that suits your investment style and requirements.

 

Stocks - 2

Classification of Stocks:

1. By size: Large Cap, Mid Cap and Small Cap.
Large Cap companies are relatively stable, but their growth potential is less than small caps.
Small Caps have demonstrated faster growth rates over the long period.

2. Growth / Value / Income:
Growth stocks have a healthy growth rate. Many times, risk is associated with higher growth rates.

Value stock: These kind of stocks are undervalued, meaning, they have a lower PE. However, they still have a very good potential for growth. For example, a good company may have had some problems recently (new CEO, change is public perception etc), and hence, the share price is dropped. However, the stock has a potential to be profitable in the long run.
Such stocks are called Value stocks.

Income stocks: these are the stocks that pay out a regular, steady dividends. These are attractive to the conservative investors.

3. Sector: There are 10 market sectors defined by S&P:

Technology
Energy
Health Care
Industrials
Financials
Telecommunications
Utilities
Consumer Staples
Materials
Consumer Discretionary

Historically, Healthcare, Tech and Finance have been considered as fast growing sectors. Utility sector is considered stable, with moderate growth potential.
 

Stocks - 1

Stock Trading Terminology

P/E Ratio: it is the ratio of Price or market value of a share and Earnings per share.

P/E = Price of a share / Earnings per share

For example, if a stock is trading at 50, and the earnings per share of the stock for last year is 2.5, then the PE ratio would (50/2.5) = 20.

Variations:

Trailing PE = Price of share / EPS of last 4 quarters

Forward PE = Price of share / Estimated EPS for next 4 quarters

Interpretation of PE ratio:

PE Ratio indicates if a stock is undervalued or overvalued.

PE ratio should be used to compare companies in the same sector.

A higher PE indicates a higher growth potential.

Companies that do not have PE ratio are not earning (and not expected to) earn anything.

Historically, following is the interpretation of PE ratio.
NA - means the stock does not earn anything, or negative earning. Hence, PE ratio is cannot be determined.
0-10 - means the company is undervalued, and its earningsis likely to go down.
11-17 - this is considered as a fair, stable range of PE.
18-25 - the company is overvalued. Earnings have gone up substancially, in the recent times.
> 25 - means the investors have very high expections about the growth of this company.

It is advisable to compare the PE ratio of stock to the PE ratio of other stocks in the same industry and sector. Also, it should be compared to the overall market, for example, S&P 500 or some kind of a market index.

Price to Sale Ratio: It is the ratio of price per share, to the revenue (or sales) per share.

PS ratio < 1 makes it more attractive.

Price to Book Value Ratio:

Book value means total assets – intangible assets and liabilities.

PB ratio = Price of share / total assets – intangible assets and liabilities

Usually, all these ratios are used to compare companies in the same sector.

PEG Ratio: It is the ratio of PE of a stock to Annual EPS growth.

Ideally, PEG ratio should be < 1.

Investment in India

Here are some links that provide important information about Investments and Taxes in India.

1. NRE/NRO/FCNR Accounts:
http://www.indiantaxupdates.com/2012/11/12/nre-nro-other-bank-accounts-for-nri/

http://www.differencebetween.info/difference-between-nre-nri-and-nro-accounts