Here is a stock scan that only looks for fundamentally strong companies with long-term earnings and sales growth. This list is useful on its own as these stocks tend to outperform most other stocks, yet, we can also add in criteria to alert us when they have fallen in price and thus may present a buying opportunity.
This is not a stock trading or investing strategy. It is simply a scan that looks for high-quality stocks. What you do with them is up to you.
Buy the Dip Stock List Scan Criteria
I use StockRover and continue to get used to its nearly infinite scanning customizability. Here’s a screener that looks for multi-year profitable companies with consistent and large earnings and sales growth.
Then, add in a criterion that lets you know when one or more of these stocks has fallen 25% or more, as it may present a buying opportunity.
I would look at these more as positions trades, lasting likely 6 months to a couple of years. Whereas my swing trades last three months or less and I don’t hold through earnings. That said, your time frame is totally up to you.
Currently, there are 12 stocks on the list that meet the fundamental and performance criteria. As an option, I added in a criterion that highlights when these stocks have fallen by a certain amount, such as 25%.
To see when stocks on the list have fallen 25% or more off their high (or whatever value you select), include the Price vs 52-wk High criteria. Uncheck it to see the full list of strong stocks that meet the other criteria, but that haven’t yet fallen.
Here’s what everything on the scanner means:
EPS = Earnings per share for the calendar year, so EPS 5-Year Avg (%) > 15 means only include companies that have grown their EPS over the last 5 years by an average greater than 15% per year. This shows strong and steady growth.
Annualized 5-Year Return vs S&P 500 > 15 means the stock has outperformed the S&P 500 by an average of at least 10% per year over the last 5 years.
TTM = Trailing Twelve Months, so TTM1 is the last 12 months, TTM2 is the 12 month period prior, and so on, going back in time. > 0 criteria mean companies with negative earnings in the last 4 years aren’t included on the list.
Price vs 52-wk High (%) <75 means the price must have dropped by 25% or more from its high. Uncheck this to see stocks that meet all the criteria but that haven’t dropped.
Sales 5-Year Avg (%) > 10 means only include companies that have increased sales by at least 10% per year, on average, over the last 5 years.
EPS Y4 means EPS four calendar years ago. Therefore, those formulas are saying that EPS must have gone up each year in order to be included on the list.
Exchange is the exchanges you want to include on the list. This list includes both US and Canadian stocks.
The next two criteria are growth estimates based on analyst expectations. While analysts can wrong, if people are expecting continued growth in the stock, that tends to help its future prospects. If expectations drop below the required level, then the stock falls off the list.
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The Current Buy the Dip Stock List
Note that the list is subject to change. Run the scan yourself, or something similar on your own stock scanner, to get current results. This list is from April 26, 2021. The Price vs 52-wk High criterion was unchecked (not included) for this list. In other words, these are stocks to consider buying on a dip, but the dip hasn’t occurred yet because none of the stocks on the list have fallen 30% off their high at the time of writing.
Variations of the Buy the Dip Stock Scan
As a portfolio, the stocks that meet the scan criteria are up more than double the S&P 500 over the last year: 123.5% versus 54.% (March 27, 2020 to March 29, 2021)
I am also looking at a way to possibly turn this (or something like it) into a passive investment strategy since it is feasible to buy all the stocks on the list (if it stays small). Rotate into and out of stocks as they come into or drop off the list (or using some other method). Backtesting all the criteria is hard though, so I am working on that.
It is a pretty simple scan, but it really narrows it down to companies that produce growth and are expected to continue producing it.
Remove the “growth estimates” at the bottom of the scan to get more stocks, since a lot of stocks aren’t popular enough to have growth estimates published on them (and will thus be eliminated if those criteria are included). By making this change, performance of the whole portfolio +115.4% over the last year. 39 stocks made that list, including more high flyers, but also some duds.
You could also reduce the growth criteria to get more stocks that would still be quality. Reducing the >15s to >10s increases the number of stocks to 23, and the overall performance of the stocks drops off (114.9% as a portfolio versus 123.5% with the higher criteria).
There are nearly infinite variations of this type of scan. Take from it what you will and leave the rest.
Trading the Buy the Dip Stock List
Define how you will use the scanner in your trading plan. Define when and why you will buy, and when and why you will sell. Also, consider your position size.
For myself, I look at its typical pullback amount in percent (range of values over the last few years). Once it has declined into that % range , I look for a bottoming pattern. Ideally, I want the long-term uptrend still intact despite the decline.
A stop loss is placed at a point where if the stock drops back to it I was wrong about the rally and I get out.
Since I am anticipating to hold these stocks for some time, I typically consider profit targets of 100% or more. I have noticed that doubling the 200-day moving average price at the time of entry often serves as a good target…although this will depend on the entry. The 200-day moving average can also act as a trailing stop loss; exit when the price falls back below it (the price will need to move or be above it first, which is why the initial stop loss is there).
Again, just some ideas. Use it how you wish.
Cory Mitchell, CMT
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Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.