3 Screening Strategies Crushing the Market This Year

What a year so far, and we're barely only 6 months in.

After one of the worst starts to the market ever, plunging more than -11% in just 2 short months, the market just as quickly made it all back and then some. Although, after all the volatility the market is essentially back to where it was when it started.

And even though the market pushed past resistance just last week with the S&P 500 climbing above 2,100 -- for many investors, it's been a frustrating period with little return to show for it.

There are, however, plenty of stocks going up. You just have to know where to look to find them.

But look no further, as I'll be going over three winning stock picking strategies that have been absolutely crushing it this year.

1) 'TA and FA Winners' Screen

TA and FA Winners is short for Technical Analysis and Fundamental Analysis Winners.

Fundamental Analysis (FA) looks at the value and growth outlook for a stock.

Technical Analysis (TA) essentially shows the demand for a stock and how the market perceives those fundamentals.

Some die-hard fundamentalists disregard TA, while some technicians do the same for FA. But, nowadays most people give both techniques the respect they deserve. And rightly so as both of them together makes for a powerful combination.

Over the last 16 years (2000 thru 2015), it's shown an average annual return of 51.8% vs. the S&P's 3.8%.

And so far in 2016 (thru 5/27/16), it's up 30.2% vs. the market's 3.7%.

It was designed to hold 7 stocks in its portfolio at a time. It's rebalanced weekly. And it trades on average on 4 stocks a week.

MORE . . .

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Parameters

• Zacks Rank less than or equal to 2
(Only Zacks Rank #1 Strong Buys and #2 Buys will get through. This immediately tilts the odds of success in our favor as they've handily beating the market by nearly 3 times and 2 times as much, respectively.)

• Price to Sales less than Median for its X Industry
(This is my favorite valuation metric. The P/S ratio is calculated as price divided by sales. If a stock is trading at a P/S ratio of 1, that means you're paying $1 for every $1 of sales the company makes. If a stock has a P/S ratio of 2, that means you're paying $2 for every $1 of sales the company makes. As you can see, the lower the number, the better. If a stock has a P/S ratio of .5, that means you're paying 50 cents for every $1 of sales the company makes. Different industries have different P/S ratios that are considered normal. In this screen we're focusing on stocks with a P/S ratio less than the median for its industry, which means we'll be selecting those with valuations less (i.e., better) than their peers.)

• Estimated One Year EPS Growth Rate greater than Median for its X Industry
(Stocks with industry beating growth rates.)

• Price x Volume greater than or equal to $500,000
(This item, also known as dollar volume, shows how much money on average trades in and out of a stock each day. We're setting a bare minimum with this screen at $500,000. We want to make sure there's plenty of trading interest and liquidity in this stock. For example, a stock trading at $5 a share with an average trading volume of 100,000 shares a day would have a dollar volume (aka, DV) of $500,000. A stock trading at $50 with 1,000,000 shares traded a day would have a dollar volume of $50 million.)

• Recent Week's Volume greater than Volume from 1 Week Ago
(Rising prices on increasing volume are often considered confirming indicators. Price and volume should move together. As prices go up, the rise in volume suggests increased buying demand. See below for the increasing price items.)

• Volume from 1 Week Ago greater than Volume from 2 Weeks Ago
(A second week of rising prices and volume points to accumulation. This also shows last week's rise in both price and volume was not a fluke as additional follow through buying is coming in.)

• Volume from Two Weeks Ago greater than Volume from Three Weeks Ago
(The third week points to institutional buying. Individual investors don't have the buying power to make a noticeable increase in volume, let alone a sustained one. But institutions do as they account for over 70% of trading volume. And institutions can and do move the market.)

• % Change in Price 24 Weeks equal to Top # 30
(This item narrows down the list of all the qualified stocks that met the above criteria to the top 30 with the best price performance over the last 24 weeks.)

• % Change in Price 12 Weeks equal to Top # 20
(From that list of 30, it then narrows it down to the top 20 stocks with the best price performance over the last 12 weeks.)

• % Change in Price 4 Weeks equal to Top # 7
(And from that list of 20, it picks the top 7 stocks with the best percentage price change over the last 4 weeks.)

This screen and these stocks are clearly doing something right as evidenced by their impressive returns.

2) 'New Highs' Screen

This screen focuses on a powerful concept, and that's buying stocks making new highs.

If somebody were to ask you what your best stocks are, you would likely name the stocks moving up the most in your portfolio. Your worst stocks? The ones going lower, of course.

Simply put, the winners in your portfolio are the ones going up. Period.

If the stock is underperforming the market (or worse, going down), you'll quickly identify it as one of your worst holdings -- and you would be right to do so.

This screen finds stocks trading at or near their 52-week highs. And statistics have shown that stocks making new highs have a tendency of making even higher highs. And, of course, these stocks have the fundamentals to keep new highs coming.

Over the last 16 years (2000 thru 2015), it's shown an average annual return of 51.9% vs. the S&P's 3.8%.

And so far in 2016 (thru 5/27/16), it's up 43.3% vs. the market's 3.7%.

It was designed to hold 5 stocks in its portfolio at a time. It's rebalanced weekly. And it trades on average of 3-4 stocks a week.

Parameters

• Current Price/52-Week High greater than or equal to .80
(Stocks that are either at a new 52-week high, or have just hit it and are still trading within 20% of their 52-week high, or are climbing towards their 52-week high and are within a 20% striking distance of it.)

• Percent Change in Price over 12 Weeks greater than 0
(Even though we're looking for stocks trading near their highs, I still want to make sure the price momentum over the last 3 months is positive.)

• Percent Change in Price over 4 Weeks greater than 0
(The same goes for the last month as well.)

• Zacks Rank equal to 1
(Only Zacks Strong Buys for this one.)

• Price/Sales Ratio less than or equal to Industry Median
(As mentioned before, the P/S ratio shows how much you're paying for every $1 of sales the company makes. And like the previous screen, we're requiring the P/S ratio to be less than the median for its Industry.)

• P/E (using F1 Estimates) less than or equal to Industry Median
(Just like the P/S ratio, we're looking for stocks whose P/E is below the median for their respective Industry. Including proven valuation metrics when using price momentum screens gives the trader a significant advantage.)

• Projected One Year EPS Growth F(1)/F(0) greater than or equal to Industry Median
(P/S and P/E ratios searched for stocks with valuations below their Industry's median. But this item is looking for stocks with projected growth rates above the median for its Industry. In order for a stock to continue to go higher, there needs to be a reason for it to do so. And strong growth of course is an important part of that.)

• Current Avg. 20-Day Volume greater than Previous Week's Avg. 20-Day Volume
(This helps find stocks where the volume has increased in the recent week vs. the previous week. Once again, if the price is climbing on increased volume, that shows increased demand or buying coming in. And the more buying demand there is for a stock, the more it should climb.)

• All of the above parameters are applied to stocks with a Price greater than or equal to $5 and an Average 20-Day Volume of greater than or equal to 100,000 shares.

• Percent Change in Price over 12 Weeks + Percent Change in Price over 4 Weeks equal to Top # 5
(Lastly, the screen is then narrowed down to produce no more than 5 stocks at a time. The way we're doing it with this item is by combining the percentage price change for both the 12-week and 4-week periods to select the top 5 stocks. Why? If the 12-week % price change is solid, but the 4-week change is relatively weak, that might mean the stock is retreating from its high rather than advancing towards it. On the other hand, if the 12-week gain came largely from just the last 4 weeks-worth of gains; while that's impressive, it shows that the trend prior to the most recent period wasn't as robust. This item tries to find the best gainers on both time horizons in an effort to see that momentum carry forward.)

What's interesting is that, even though we're buying stocks near their highs, the risk/volatility (as defined by its maximum drawdown) was 23% less than the S&P while generating significantly better returns.

3) 'Value Method 1' Screen

Value investors and traders favor good stocks at great prices. This does not mean they have to be cheap in price though.

The key is the belief that they are undervalued. That they are, for some reason, trading under what their true value or potential really is. And the value investor hopes to get in before the market 'discovers' this and moves higher.

Value investing became famous from legendary investor Benjamin Graham, and more recently Warren Buffett. Obviously, they know something. And they do.

In fact, value investing has proven to be one of the most successful forms of investing over time. Over the last 16 years (2000 thru 2015), this strategy has shown an average annual return of 49.8% vs. the S&P's 3.8%.

And so far in 2016 (thru 5/27/16), it's up 55.7% vs. the market's 3.7%.

It was designed to hold 7 stocks in its portfolio at a time. It's rebalanced weekly. And it trades on average of 4 stocks a week.

Parameters

• Zacks Rank less than or equal to 2
(Zacks Rank 1s and 2s Strong Buys and Buys.)

• % Change Actual EPS (Q0/Q-1) greater than X Industry Median
(EPS growth above the median for their expanded industry. Too many value stocks are cheap because there's no real growth to speak of. This item selects stock with growth rates above the median for their industry, and specifically excludes those below it.)

• P/E Ratio Using 12 Month EPS less than X Industry Median
(P/E ratio below the median for its industry. As we've mentioned in previous screens, certain items have averages or medians that vary from industry to industry. This identifies only those trading at a discount to the median to their peers.)

• Price/Sales Ratio less than X Industry Median
(The same applies to the P/S ratio as well. Only those trading at a discount to their respective industries can get thru.)

• (% Rating Change over 1 Week) + (% Change Q1 Estimate over 4 Weeks) + (% Change F1 Estimate over 4 Weeks) equal to Top # 7
(This calculated expression combines three items together because of their predictive performance. Stocks with positive broker rating changes (broker rating upgrades) outperform those with broker rating downgrades, and those with no broker rating change at all. And stocks with upward earnings estimate revisions tend to receive more upward earnings estimate revisions, which often leads to higher prices. Using the current quarter and the current year shows increased optimism for both the short-term and the longer-term. Only the 7 stocks with the highest scores for all three items combined get picked.)

One of the potential drawbacks with some value screens is that you often have to wait awhile before the market recognizes that it's mispriced (undervalued) a certain stock and starts to move higher.

Some value stocks, for whatever reason, have been ignored by the market. Hence the typically longer-time horizon while you wait for the market to take notice.

But there's no better catalyst to get a stock moving than a series of upward earnings estimate revisions. Throw in a broker rating upgrade, and the timeliness of the Zacks Rank, and you have a list of stocks with virtually every reason to move up -- and fast.

Start Beating the Market Today

As you can see, the market doesn't have to go straight up in order to make money. And you don't have to wait for the next bull market rally either.

Granted, it's easier. But, if you have a screening strategy that can pick winning stocks no matter what's happening in the market -- that can transform your portfolio.

It all comes down to knowing what works, and then doing what works. And that means sticking with proven profitable stock picking strategies.

A great way to begin is to look into our Zacks Method for Trading program.

This interactive home-study course guides you to better trading step by step. We go over in detail how to identify what kind of trader you are, how to find stocks with the highest probability of success and how to trade them so you can consistently outperform the market, regardless of what the market is doing. It also goes over more of our best performing strategies from all of the different trading styles and shows you how to create and test your own.

Today is the perfect time to get in because I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every insider secret I know about the Zacks Rank stock-picking system that has worked through bullish, bearish and range-bound markets.

In fact, despite three full-blown recessions and numerous bear markets, this system has nearly tripled the S&P 500 with an average gain of +26% per year since 1988. That incredible performance has been examined and attested by the independent accounting firm of Baker Tilly Virchow Krause, LLP.

The opportunity to get the book for free ends this Wednesday, June 8, so please don't wait to look into it.

Click here to learn more >>

Thanks and good trading,

Kevin

Zacks VP Kevin Matras is our chart patterns and stock screening expert. He runs the Research Wizard and personally developed many of its built-in market-beating strategies. He also directs the Zacks Method for Trading: Home Study Course.

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