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Four basic screens to start your own investment portfolio.

By Kristoff De Turck

Last update: Mar 22, 2023

Investors come in different styles and sizes. In this article we look at four different investment strategies that can serve as a basis for building your own investment portfolio. We explain what each style entails and what basic filters you can use in ChartMill to get a first basic selection.

when you've read the article be sure to watch this video where we show how to set up filters in ChartMill.

Investing in growth stocks

Growth stocks are stocks of companies where rapid and strong growth is expected. The dividend yield is usually low and the price measured against the P/E ratio is high.

These are mostly young promising companies that offer a lot of potential in the eyes of analysts and investors. They are characterized by very pronounced revenue growth. Turnover that is just as quickly invested however, in order to further accelerate the growth curve. The downside is that because of these huge investments, the price/earnings ratio of typical growth companies is usually very high, or in other words, the current share price is expensive relative to the profits that the company makes just because the future expected profits are already partly priced in. Those who invest in such shares therefore pay a premium. The underlying idea with growth investors is that high growth will eventually lead to very significant excess profits in the future. Growth stocks undoubtedly offer opportunities for huge returns but the risks are also greater than with other fundamental strategies.

What to be aware of when looking for growth stocks?

  • Rising profit margins: The best growth stocks are those of companies with profit margins that rise over time. Profit margins that are still negative but become positive while an investor owns the stock can result in significant price appreciation, generating very high returns for the investor's portfolio. This is equally true for high-growth companies that are already profitable but can still increase their profit margins; these companies are lower-risk investments and are usually more suitable for investors in new growth stocks.

  • Strong revenue growth: The best growth-oriented companies significantly increase revenues over time, as this is the only reliable way to also grow profits for years.

  • Expected earnings growth: Positive analyst projections regarding future earnings growth are a positive sign. And while analysts' projections are not always accurate, they are useful for gauging market expectations.

  • Adequate return on equity: ROE, or return on equity, is equal to net income as a percentage of equity. A company with a high or increasing ROE relative to its competitors uses capital more efficiently to generate profits.

  • Acceptable debt ratio: Since it is possible to achieve a high ROE by taking on high amounts of debt, it is important to also evaluate a company's liabilities. The company's ROE should not be unduly affected by its debt, and debt levels should be similar to those of competitors. The company's historical performance should show a trend where the company keeps its debt at manageable levels.

Basic screening filters in ChartMill

EPS GROWTH 1Y >= 15%







ROE >=15%

Direct link to ChartMill only US

Direct link to ChartMill only EU

Investing in value stocks

Unlike those who invest in growth stocks, a value investor looks for stocks that are trading at a price lower than their intrinsic value. In other words, these are stocks that are undervalued compared to the company's financial metrics, such as earnings or revenues.

When value investors consider that this price is (much) lower than the intrinsic value of the company, they will buy the shares, assuming that over time the true value of the company will be recognized by more and more investors. On such undervalued stocks, value investors will additionally apply a margin of safety to hedge against loss as much as possible if their assumption turns out to be wrong.

What to be aware of when looking for value stocks?

  • Low P/E ratio: This metric shows how much an investor is willing to pay for every euro a company earns. A low P/E ratio is a possible indication that a company is cheap but only if profits can keep pace while the stock price falls. Keep in mind that this ratio is sector-specific and you should only compare companies that belong to the same sector.

  • Low price-to-book ratio: The book value of a stock is often equated with the company's equity. Equity is created by subtracting total debt from all assets (buildings, machinery, cash, etc.) all debts. The lower the price/book value, the cheaper the company but be careful with a value lower than 1 because this means that investors are not even willing to pay the equity value. In that case, try to find out what is the underlying reason for this. Again, only companies from the same sector should be compared. A few other things to consider when using P/E can be read in this article.

  • Low PEG ratio: This ratio is an extension of the popular P/E ratio where additional consideration is given to future earnings growth. The P/E ratio is compared to expected earnings growth. The lower this number the better.

  • Rising cash flow: This is the cash that remains after a company has paid its operating expenses and capital expenditures. The extent to which free cash flow increases is an interesting statistic for value investors because it usually precedes rising earnings. The reason free cash flow is rising may be due to improved sales and revenue growth or because the firm has been able to reduce its costs. A low stock price while at the same time free cash flow is rising is a harbinger that earnings and stock value will follow the positive trend of free cash flow.

Basic screening filters in ChartMill

P/E<= 10


P/B <= 1

PEG (NY)<= 1

P/FCF <= 10

Direct link to ChartMill only US

Direct link to ChartMill only EU

Investing in quality stocks

Investors in quality stocks are looking for companies with a good reputation, stable and increasing returns on capital and a solid balance sheet (not too much debt). These firms show decent, balanced growth. A solid market position and a pronounced "moat" makes the likelihood of heavy competition relatively low.

The big difference with the value investor is that the quality investor is willing to pay a premium (albeit limited) on top of the intrinsic value.

What to be aware of when looking for quality stocks?

  • Solid revenue growth: Similar to what we mentioned above for growth stocks, revenue growth is the driver of future revenues and resulting profits. It is therefore logical that it is also a parameter retained for purebred quality stocks. It is an important measure of historical performance.

  • Solid earnings growth: A quality stock worthy of the name should obviously be able to present more than decent earnings figures. For this parameter, we use EBIT-growth. Unlike EBITDA, EBIT also takes into account depreciation and amortization.

  • In addition to revenue and profit growth, we also look at both ratios in relation to each other. Ideally, earnings growth is higher than sales growth, which is evidence of improving profitability and is a strong indication that such companies are likely to enjoy economies of scale or have sufficient pricing power.

  • High return on invested capital: This is undoubtedly the single most important parameter in the search for quality stocks. ROIC measures the extent to which allocated capital is put to work and generates profits. In essence, ROIC reflects the ratio of money leaving the company versus money coming in. The stock screener ChartMill distinguishes three different variants of ROIC of which we use the most operational version. In this version, the return is calculated on pure invested capital, excluding cash, goodwill and intangible assets.

  • Manageable debt levels: Debt is not necessarily negative but it must remain manageable for the company in question. To get a good picture of this, debt is measured against free cash flow. Free cash flow is the portion of cash that can be taken out of a company each year after all expenses and investments have been paid. By setting the debt against the free cash flow, it is easy to calculate how many years it will take to pay off all outstanding debts with the available free cash flow.

Basic screening filters in ChartMill

Revenue-growth (5Y CAGR) > 5%

EBIT growth (5Y CAGR) > 5%

EBIT growth (5Y CAGR) > Revenue-growth (5Y CAGR)

ROICexgc > 15%

Debt / FCF < 5

Direct link to ChartMill only US

Direct link to ChartMill only EU

Investing in dividend stocks

Dividend stocks are stocks of companies that pay attractive dividends year after year. Most companies that pay such dividends have stable sales and profits. Because the companies are usually already fairly mature, there is very limited investment in further growth. That leaves much of the profit to be paid out as dividends to shareholders.

The dividend investor looks specifically for stocks that pay a (high enough) dividend in order to generate a steady stream of income. This income can either be converted into cash or the dividend can be reinvested (a combination of both is also possible). It is important not only to look at the size of the dividend, the company must first and foremost be financially healthy. The company's results are extremely important in determining the future dividend. Be sure to check to what extent the dividend yield has remained stable in the past.

What to be aware of when looking for dividend stocks?

  • Dividend yield: A decent dividend yield is important but don't be trapped by very high yields. While that may look very enticing, ask yourself how it is possible. After all, the dividend yield is calculated on the stock price. A sudden sharp drop in the share price has the effect of increasing the dividend yield. Always consider what caused the stock price to fall. If the company is in bad papers, chances are that the high yield cannot be sustained.

  • Payout Ratio: This ratio shows how much of net income is used to pay dividends. If the payout ratio is only 30%, enough capital still remains for other investments. This is much less the case with payout ratios higher than, say, 70 or 80%. The level of the payout ratio also depends on the company itself. Very large established firms that barely focus on further growth have a greater margin to use a significant portion of their net income for dividend payments.

  • Dividend growth: stable dividend growth is usually a sign that the company is performing strongly. However, the same warning applies as with dividend yield. Don't be seduced by spectacular dividend growth outright....

  • Dividend stability: Dividend investing is meant for the long term. This involves keeping companies that pay solid dividends in port for as long as possible. Companies that manage to increase (or not decrease) their dividends year after year are ideal in this regard.

Basic screening filters in ChartMill





Direct link to ChartMill only US

Direct link to ChartMill only EU (without 'DIVIDEND NON DECREASE YEARS >=5' filter)

A few things to consider as well

The use of objective and quantifiable parameters allows you to make a targeted search for stocks that perfectly fit your own investment strategy. A stock screener such as ChartMill helps you to quickly make an initial basic selection that you can use to further fine-tune and ultimately decide which stocks you consider worth buying. While doing so, don't forget to consider these items as well:

  • Take into account general market conditions and related market sentiment. Identifying companies that do quote 'cheap' based on your research can still lose much of their value if the general market sentiment is negative.

  • What sectors do your selected companies belong to? Are these rather defensive or cyclical sectors and what about the short-, medium- and long-term performance of that sector? It may well be that you spot a great stock that stands out because of recent results, but if that stock is part of a sector that is underperforming, any lesser results of sector peers will also have a negative impact on your carefully selected company.

  • Are there several candidates in your selection that belong to the same sector? Great! That makes it much more likely that the sector in general is also doing well. Don't forget to compare those companies with each other since many of the ratios used above are sector-specific.

  • Don't just base yourself on the result of a specific ratio, but also look at its historical evolution whenever possible. It will give you a better understanding of the sustainability and robustness of the company itself.

Quantitative versus qualitative

Finally, in addition to the listed quantitative characteristics, there are numerous qualitative characteristics that make companies with seemingly the same quantitative results yet very different. A few thoughts worth considering in this regard:

  • What about the quality of management?
  • How does the company compare to its industry peers, and how strong is its competitive position?
  • To what extent does the company have further growth potential? Can it respond to new or changing trends in a timely manner?
  • Is the company able to pass on rising costs without much difficulty if necessary?
  • Is the company sufficiently resilient if economic conditions deteriorate?
  • ...

Investing in stocks takes time, patience and perseverance. Which strategy you use in doing so is different for everyone but always make sure it matches your personality and risk appetite. An attractive return is important but not at the expense of your mental well-being.

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