How to Use a Stock Screener -Robert Brown III, MII Marketing Officer Sept 23 rd, 2003

First Steps Go to Yahoo.com or search for a stock screener Go to Yahoo.com or search for a stock screener Decide if you want to find a long or a short Decide if you want to find a long or a short This guide will focus on a short screen This guide will focus on a short screen Select a minimum stock price over 5 Select a minimum stock price over 5

Set Parameters for a Short Smaller market cap Smaller market cap Industry you understand Industry you understand Analyst Recommendations (buys often = good shorts) Analyst Recommendations (buys often = good shorts) Search for either abnormally high earnings growth, negative earnings growth, or low earnings growth Search for either abnormally high earnings growth, negative earnings growth, or low earnings growth PEGS over 1.5 might find overvalued stocks PEGS over 1.5 might find overvalued stocks

Narrow down the hunt Sort through the screen and glance at the profile of select companies Sort through the screen and glance at the profile of select companies Develop an initial opinion Develop an initial opinion - Does this industry interest you? - Is this a rapidly changing industry? - Does this business make sense? - What do you want to look for?

Fundamental Analysis View the statistics on Yahoo View the statistics on Yahoo Ratios (ROI, ROA…) Ratios (ROI, ROA…) Margins (profit, operating….) Margins (profit, operating….) Compare stats to competitors Compare stats to competitors What is the company positioning? What is the company positioning? Examine stock chart Examine stock chart Any sudden upswings or drops in price already reflect story? Any sudden upswings or drops in price already reflect story?

Hunt down the Clues Check out the financials quarter/annual Check out the financials quarter/annual Any important trends? Any important trends? Declining Sales (failure) Declining Sales (failure) Huge Sales growth (fraud/fad) Huge Sales growth (fraud/fad) Link the sales to net income Link the sales to net income Does the sales story back the income story? Does the sales story back the income story? Ask why Ask why

Following Cash Check out the cash flow statements Check out the cash flow statements Cash from operations – capital expenditures = Free Cash Flow Cash from operations – capital expenditures = Free Cash Flow If the company has no free cash flow it’s financing the business through debt/equity If the company has no free cash flow it’s financing the business through debt/equity Good companies have positive free cash flow. Bad companies build liabilities till they collapse Good companies have positive free cash flow. Bad companies build liabilities till they collapse

Specific Clues Look at a/r and inventory Look at a/r and inventory Any major increases or decreases? Any major increases or decreases? Look at the quality of assets Look at the quality of assets Goodwill Goodwill Intangible Intangible Inventory Inventory Look at trends in debt Look at trends in debt Over financing business Over financing business Diluting shareholder value with equity Diluting shareholder value with equity

Final steps Write down a brief thesis on why you think the company is a short Write down a brief thesis on why you think the company is a short Perform an Industry Analysis Perform an Industry Analysis Read 10k-10q, listen to conference calls Read 10k-10q, listen to conference calls Revise your thesis if you need too Revise your thesis if you need too Apply Value Added Research: call competitors, suppliers, customers, management Apply Value Added Research: call competitors, suppliers, customers, management Does the VAR back your thesis Does the VAR back your thesis

Create a timeline with catalysts to help you decide when to short the stock. Create a timeline with catalysts to help you decide when to short the stock. Wait till “Chink in the Armor” because markets can remain irrational (hype the price of a bad company) longer than you can remain liquid Wait till “Chink in the Armor” because markets can remain irrational (hype the price of a bad company) longer than you can remain liquid As romance becomes reality with the stock price you should profit As romance becomes reality with the stock price you should profit Create a Timeline

Last Thoughts Yahoo screener is very arcane. Research Insight offers more parameters Yahoo screener is very arcane. Research Insight offers more parameters Don’t confuse screeners with quantitative models. Quant models often make the investment decision. Screeners simply narrow down the search Don’t confuse screeners with quantitative models. Quant models often make the investment decision. Screeners simply narrow down the search

Questions?