17 Stock Screening Strategies That Beat The Market

Before I dig into the 17 stock screening strategies that historically beat the pants off the market with a giant stick, the question needs to be asked: why use a stock screener at all? Good question.

The highest performing stocks in the market are generally unknown to the public. And for good reason – it is not worth the time and effort for analysts to cover them. People want to hear about Apple, Google, and Telsa but not some nano-cap water utility company with zero analyst coverage. Yet that little water utility beat the market last year by 180%…that is 180% out-performance on a stock you, and most the world, have never heard about. And you probably never will unless you use a stock screener.

Winning Stocks are Needles in a Haystack

To prove this point, I examined a group of stocks that had the highest 52-week performance in major US markets. Less than one-third of them are found in the Russell 3000 index. We are talking about the largest 3,000 stocks in the market – but this index includes 2,000 smallcap stocks. You rarely hear about stocks if they are not considered large, mid or small-cap. Yet two-thirds of these winning stocks were not part of the most widely covered stocks.

If you want a chance to swing and hit it out of the park, you will need a stock screener and should most definitely not rely on analysts or popular stock market news portals. Writers will go hungry if they write on these tiny stocks – I know since I write for Seeking Alpha. That’s why you will rarely hear about them.

Start Your Journey With a High-End Screener

Step one, before you go any further, is to sign up at Portfolio123 with this link which will give you 30 days of a free trial instead of 15. And you can always downgrade your package after the trial to the lowest tier that works for you.

It is an affiliate link but P123 is the only software I currently use for modeling and the modest amount of affiliate earnings I get, if you decide to stick with Portfolio123, is the only compensation I will get to write you information-packed articles such as this one. It is a win-win in my books. You get awesome software and a steady stream of investment ideas while you keep me incentivized to keep on producing great content.

17 Stock Screening Strategies

Onto the 17 stock screening strategies that beat the market. All return statistics will be based on total performance (price gains plus dividends) with weekly rebalancing over the past 10 years. To focus on those uncovered gems, market capitalization will have a ceiling of $500 million. Minimum liquidity is set at $50,000 of daily trading (except for the first factor).

For context, the S&P 500 has average 4.7% annual returns over the past 10 years. And don’t worry about writing down these ideas and formulas – I will make them available to you at the end of the article.

Low liquidity – There is a massive premium if you are willing to buy stocks that trade little volume. The average annual return of stocks listed on a major exchange which trades  a range $5,000 to $50,000 per day is 19.49%. And you have 500 stocks to choose from.
Earnings revision – When analysts revise their earnings guidance upwards, prices typically drift up as well. You have an average of 311 stocks to choose from with an average annual return 18.8%.
Greenblatt – You have likely heard about Magic Formula Investing? This ranking system borrows the two factors made famous by Joel Greenblatt. You have 100 stocks to choose from with an average annual return of 16.83%.
Value – Use the Portfolio123 value ranking system to light a fire under your investing rocket. Be cautious with value since there are periods where it will drop hard. But over the past 10 years, deep value has averaged 22.74% annually.
Low volatility – There are lots of ways to screen for low volatility. I prefer a method that is called Average True Range Normalized. Low volatility may not produce record-breaking highs, but that isn’t the point. Your goal is for a smooth sailing. With a 10 year trailing annualized return of 10.2%, this low volatility system is no feather weight.
Strong yield and low short interest – Are you an income investor who wants a strong total return without constantly stepping into high yield traps? This simple system screens for dividend yields above 3% while managing risk by focusing on stocks with short interest less than 2%. This micro-cap dividend system with an average 13% annual return is an income winner.
Momentum 4 week reversion – This is a high turnover strategy suitable for traders that know how to slip in and out of stocks without driving prices up and down. Because performance is also a bit erratic, only traders with some experience should try this. The logic is that stocks which fall the hardest over the past 4 weeks revert upwards over a very short period. The average annual return on this trading system is 29.33%.
Improvement in analyst recommendation – When analysts upgrade the stock rating (sell, hold or buy), this usually creates a small buying flurry. My rule is that the analyst rating must be significantly better than what it was 4 weeks ago. This has historically provided a 21.57% annualized return.
High Yield, Low Payout – Stocks with a high dividend yield and low payout ratio are historical out-performers. My testing shows an average annual return of 20.2%.
Earnings Blowout – Massive earnings surprises of more than 100% often have prices drifting upwards for the next 4 weeks. This simple 2 system has an average annual return of 31%.
Piotroski F-Score – Joseph Piotroski is an academic who developed a simple 9-point scoring system to discover value stocks making a turnaround. In my test, stocks which have a Piotroski F-Score of 7 out of 9 or higher have an average annual return of 17.74%.
Shareholder Yield – An alternative to high-yield investing, which doesn’t work very well, is shareholder yield. Shareholder yield factors in dividend yield plus share repurchases. This system has an average annual return of 20.7%.
Value Momentum – Some like cheap stocks, others prefer stocks on the move. But when you mix deeply discounted stocks with upwards price momentum you get rockets with fuel to burn. This simple combo has an annual average return of 19.35% over the past 10 years.
Increasing Sales Forecast – Sales is the backbone of any company. No revenue means no profit and poor stock performance. But I don’t just look for an increase in the sales forecast. The stock should be able to generate a lot of profit based on the assets they own. This 2 part system has a historical annual return of 21.64%.
CAN SLIM on Sale – Heard of the CAN SLIM investing system from Investor’s Business Daily? It is a high-growth strategy by William J. O’Neil and was the first stock system I ever tried. I have combined his winning system with a value ranking system to have CAN SLIM on sale. Trailing annualized return sits at 20.55%.
Sentiment Value – This is based on the free Portfolio123 ranking system which analyzes how analysts and investors feel about a stock. It is a combination of 7 factors that looks at analyst earnings revisions, earnings surprises and any positive changes in the overall recommendation. This is a combination of points 1, 8 and 10. I add to the mix stocks with good value – a trailing PE ratio below 20. The average portfolio size of 44 stocks has returned an average 34.32% annually over the past 10 years.
GARP – This screen looks for Growth at Reasonable Price. This simple 2 factor screen recommends stocks with a trailing PE ratio of less than 20 and where the last quarterly earnings growth is more than 25% higher than the same period last year. It has historically picked an average of 219 stocks with an average annual return of 22.75%.

Get All The Screens Here

Do you want a simple and effortless way to screen stocks using these 17 strategies? First, sign up to Portfolio123 with this link. Or use the invitation code HKURTIS. That’s me, Kurtis Hemmerling. Are you finished? Ready for the quick and easy access to the 17 strategies?

Use this BacktestInvesting.com – 17 screening strategies screen that I built just for you.

Each rule can be turned on or off so all you need to do is activate the appropriate screen line (red or green dot). You can now screen and backtest to your hearts delight. Save a copy of this in your own account. Modify it. Make it better. Combine rules. Whatever you like. My only wish is that you develop an awesome investing strategy to blow the doors off the market. And when you do, please comment on how you did it without giving away all your ‘secret stock screening sauce’.