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    Quantitative Stock Screening

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    Lello Pacella
    The document describes a quantitative stock screening model that analyzes financial metrics to rank stocks. It provides top and bottom ranked stocks according to the model and notes limitations, particularly around outliers skewing results. It concludes that quantitative screening is best complemented by qualitative analysis from an equity analyst.

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    © All Rights Reserved
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    Quantitative Stock Screening

    Uploaded by

    Lello Pacella
    202 views10 pages
    The document describes a quantitative stock screening model that analyzes financial metrics to rank stocks. It provides top and bottom ranked stocks according to the model and notes limitations, particularly around outliers skewing results. It concludes that quantitative screening is best complemented by qualitative analysis from an equity analyst.

    Original Description:

    quantitative stock picking using ranking criterion

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    The document describes a quantitative stock screening model that analyzes financial metrics to rank stocks. It provides top and bottom ranked stocks according to the model and notes limitations, particularly around outliers skewing results. It concludes that quantitative screening is best complemented by qualitative analysis from an equity analyst.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    202 views10 pages

    Quantitative Stock Screening

    Uploaded by

    Lello Pacella
    The document describes a quantitative stock screening model that analyzes financial metrics to rank stocks. It provides top and bottom ranked stocks according to the model and notes limitations, particularly around outliers skewing results. It concludes that quantitative screening is best complemented by qualitative analysis from an equity analyst.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 10
    At a glance
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    The key takeaways are that quantitative stock screening models can help identify potential investment candidates but require qualitative analysis to validate outliers and fully evaluate stocks.

    The text discusses several variables that are considered when determining if a stock is an attractive investment, including financial distress risk, price volatility, value factors like P/E and P/BV, efficiency measured by ROE and ROA, dividend yield, and growth both historical and based on fundamentals.

    The model evaluates stocks on factors like the Altman zScore, normalized ROE, price volatility, P/B ratio, P/E ratio. It assigns each stock a decile score for each factor, then sums the decile scores to get a cumulative attractiveness score.

    Exploiting Fundamental Analysis to generate trading

    signals

    As of 2 quarter of 2014

    Disclaimer
    All the financial recommendations offered are

    for educational purposes only.


    I decline any responsibility for eventual losses you
    may incur implementing all or part of the ideas
    contained in this work.
    I am NOT authorized to give investment advice.
    The price, value of and income from any of the
    securities or financial instruments mentioned in this
    report can fall as well as rise.
    Author may be contacted at lello.pacella (at) yahoo.it

    What makes a stock an attractive


    investment?
    You are probably thinking about variables like:
    Financial Distress Risk (measured by zScore)
    Price volatility
    Value factor (captured by P/E or P/BV)
    Efficiency (in terms of ROE or ROA)
    Dividend Yield
    Momentum
    Growth (historical or based on fundamentals)

    The model
    Altman zScore: the higher the better
    Normalized ROE: the higher the better
    Price volatility: the lower the better
    Price to book ratio: the lower the better
    Price to earnings: the lower the better.
    For each variable we calculate a decile (high decile like

    10 means high attractiveness, low decile such as 0 or 1


    implies low attractiveness)
    Deciles are summed up to get a cumulative score.

    Top 10
    6 2014

    zScore

    NormROE Volatility

    Growth

    P/BV

    P/E

    zScore

    NormROE Volatility

    Growth

    P/BV

    P/E

    Cumulative
    Score

    GME UN Equity

    8,4

    17,6

    9,0

    134,3

    2,1

    12

    49

    GNTX UW Equity

    9,5

    20,5

    11,2

    47,3

    2,9

    16

    45

    ARW UN Equity

    4,1

    13,0

    10,9

    42,2

    1,4

    12

    10

    10

    44

    HRS UN Equity

    5,2

    31,9

    7,4

    136,8

    4,4

    15

    44

    ITT UN Equity

    3,0

    57,5

    10,1

    48,4

    3,5

    10

    10

    44

    CTSH UW Equity

    14,3

    22,6

    12,8

    23,8

    4,3

    15

    10

    43

    GHC UN Equity

    3,6

    12,3

    9,1

    1571,9

    1,5

    16

    10

    43

    INTC UW Equity

    5,1

    18,0

    8,1

    39,8

    2,6

    15

    43

    AVT UN Equity

    4,6

    12,9

    14,1

    47,7

    1,3

    10

    10

    10

    42

    GILD UW Equity

    9,2

    55,5

    12,2

    373,2

    7,9

    18

    10

    42

    Bottom 10
    6 2014

    zScore

    NormROE Volatility

    Growth

    P/BV

    P/E

    zScore

    NormROE Volatility

    Growth

    P/BV

    P/E

    Cumulative Score

    FTNT UW Equity

    5,1

    6,6

    20,9

    -32

    6,6

    105

    32

    TIBX UW Equity

    3,9

    9,6

    40,1

    -82

    3,5

    38

    27

    ADSK UW Equity

    4,6

    8,0

    25,2

    -49

    5,6

    76

    28

    CXO UN Equity

    2,4

    10,3

    37,2

    -86

    3,4

    35

    27

    AMZN UW Equity

    5,7

    1,9

    22,8

    -1700

    14,2

    855

    17

    SLXP UW Equity

    2,8

    18,0

    27,0

    -84

    10,6

    69

    24

    ENDP UW Equity

    0,8

    2,1

    24,5

    -40

    3,8

    518

    21

    WMB UN Equity

    1,1

    6,1

    20,0

    -27

    5,5

    108

    28

    SD UN Equity

    0,4

    0,7

    38,5

    -20

    4,0

    523

    19

    TWTC UW Equity

    1,9

    7,6

    28,4

    -36

    10,0

    101

    20

    What must we conclude?


    Considering the figures on the table, I would say...

    Sell

    Fortinet Inc, TIBCO Software Inc, Autodesk Inc,


    Concho Resources Inc, Amazon.com Inc, Salix
    Pharmaceuticals Ltd, Endo International plc,
    Williams Companies Inc, SandRidge Energy Inc,
    TW Telecom Inc.

    Buy

    Gamestop Corp, Gentex Corp, Arrow Electronic,


    Harris Corp,Cognizant Technology Solutions
    Corp,Graham Holdings Co, Intel Corporation,
    Avnet Inc, Gilead Sciences Inc.

    But wait a minute.

    Outliers make the model unreliable


    For example:
    A P/E equal to 855 (as is for Amazon) is almost

    meaningless: you must inquire what is the reason


    behind such a huge number.
    An annual growth rate equal to 1571% is clearly
    exceptional and for sure it will be non-recurring.

    Conclusion
    You need to refine the model such that it is able to

    detect the outliers and discharge them.


    But most of all: you need an equity analyst who is
    able to go beyond the quantitative analysis.
    Quantitative stock screeners are very good methods
    to select potential candidates for investments but
    you still need to complement it with qualitative
    analysis.

    Thank you!
    Waiting for your comments at
    lello.pacella (at) yahoo.it
    More about me: Linkedin profile
    Excel file may be found here
    https://www.scribd.com/doc/254106579/Quantit
    ative-Stock-Screening

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