Five Filters To Get Best Stocks For Investment

Investing in the stock market presents both excitement and apprehension. The allure of profitable returns on investments is counterbalanced by the challenge of selecting the most promising stocks. A successful venture in the stock market hinges significantly on the choice of stocks for investment. This article aims to outline five filters for identifying the best stocks for investment.

Five Filters To Get Best Stocks For Investment (Source: canva.com)

It’s common to hear acquaintances boasting about substantial gains from a particular stock, but such success doesn’t guarantee similar outcomes for everyone. The crucial factor often overlooked is the timing of their entry into the market.

For instance, consider a scenario where your friend invested Rs 100,000 in ABC stock at Rs 250 per share five months ago, acquiring 400 shares. In the current bullish market, ABC’s price soared to Rs 350, resulting in an investment worth Rs 140,000 and a 40% return.

Certain stocks reach their all-time peak and never reach those levels. Investing at a high price with the expectation of further price hikes can lead to the loss of hard-earned money.

Now, let’s delve into the five filters that aid in identifying the best stocks for investment.

Filter 1: Market Capitalization exceeding 7000 crores

Companies with a market capitalization of less than Rs 7000 crores should be disregarded, irrespective of apparent stock or company appeal. The market capitalization formula is: Market Capital = current market price x number of shares.

Filter 2: Sales Growth surpassing 10%

Stocks with a 10-year average sales growth below 10% should be rejected.

Filter 3: ROCE (Return on Capital Employed) surpassing 15%

Stocks failing to meet a 10-year ROCE of over 15% should be omitted.

Filter 4: Promoter Holding exceeding 33%

Companies where promoter holding falls below 33% should not be considered.

Filter 5: Return on Share Price exceeding 17%

Stocks with a 10-year average share price growth below 17% should be excluded.

Application of Filters:

Implementing these filters manually for numerous stocks can be daunting. An effective solution is to utilize screener.in:

1. Create a free account on screener.in.
2. Access “Screens.”
3. Click on “Create new screen.”
4. Compose a search query incorporating all filter conditions:

Market Capitalization > 7000 AND

Sales Growth 10year > 10% AND

Average Return on Capital Employed 10years > 15% AND

Promoter Holding > 33% AND

Return over 10years > 17%

5. Execute the query by clicking “Run this query.”

This process will generate a curated list of potential stocks that meet the specified criteria.

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