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A Great Way to Uncover Hidden Gems Using the All-In-One Screener

January 28, 2014 | About:

One of the best ways I find to use GuruFocus is to take advantage of the many analytical tools that allow individual investors access to a level of data analytics usually found only in institutional settings.

One of my favorite tools is the All-in-One screener that allows premium members to filter the investment universe for opportunities using a diverse set of criteria. One can blend fundamental criteria with data on guru and insider ownership in a unique way.

I have been investing in the markets professionally and personally for the best part of a decade, and I have yet to find a better tool accessible to individual investors. The reason I like screens is that they allow you to focus on what you think is objectively important in a company while discarding all the behavioral biases that may arise.

To me, the most important aspect of investing is access to timely information for the prospects of the company. A fundamentally cheap company can stay cheap for years if the prospects for the business are bleak or if new entrants or technology are disrupting its markets. A seemingly expensive company might have a substantial upside if conditions are changing or new opportunities arise (growth coming back with existing operating leverage, or new products in the pipeline with high likelihood of success). Time and again, I find the best judge for the prospects of the company is the management team, especially executive management. I pay particular attention if I see a CEO embarking on new share purchases on top of the ones they already own as executive compensation.

Also, I find guru investors have mastered the art of meeting company management and having access to thorough information in a timely manner. Guru investors typically invest only after having done extensive due diligence, which is why I want to know which companies they are putting money in. 

Using these “principles,” I built a screen to alert me when there are companies witnessing insider buying and guru ownership or buying over a recent period. Due the 13F lag, I used a six-month look-back for guru data, and a three-month lookback for insider data. I also chose to focus on companies in the small-micro cap space as I believe these are under-followed and under-invested and hence can provide the patient individual investor with a competitive advantage.

Some other conditions I put in there are:

  • I want to see the CEO buying a minimum number of shares (a lot of insider info gets diluted by director activity, which to me is not as valuable info as executive management buying).
  • I want to see a minimum level of insider ownership (5% in this case) as this aligns shareholder and management incentives.
  •  The appreciation of the stock price since the last guru trade should be reasonable. After all we wan to filter out companies where the move up to reflect real value has already happened (I chose a level of 20% as we are searching small and microcaps that can easily double on a  turnaround).

The screen run today would come up with a diversified portfolio of 10 companies all witnessing significant insider ownership, recent insider buying and a vote of confidence from at least one guru.

You can all see the results here.

Then the real work of digging to find out more about these companies begins. For those of you who are inclined to buy value stocks, you can add a P/E or P/B rule and buy only stocks that appear to be cheap on this metric.

For instance, running the screen today,  I am immediately drawn to a small company called CBIZ. It’s trading at less than 5x PE, it has witnessed consistent  insider buying (although in small numbers) and seems to be a cheap, profitable and very consistent business.  With a small market cap, it’s under the radar and growing nicely away from too much attention. These are the kind of stocks I want to dig deeper in.

I found this method very useful in the past, and I wish I could build a back-test in the GuruFocus website to quantify the returns and risk on such a strategy. From my personal investing experience (albeit not a statistically significant sample), I certainly find that the information contained in these rules gives a competitive advantage over the index. 

Rating: 3.8/5 (14 votes)


Gurufocus premium member - 3 years ago


Bagwell - 3 years ago    Report SPAM

BB and google both say P/E for CBZ is 14-15. Can you reconcile the difference?

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