Undervalued stocks

Screening Filters

1. Market Cap ≥ $5,000,000,000 & Market Cap Category = Large, Mid

   • Purpose: Focus on established, more stable companies that are meaningfully sized.
   • Rationale:
     • “Undervalued” is usually most useful when applied to businesses with reasonably predictable earnings and business models.
     • Large- and mid-cap companies (≥ ~$5B) tend to have better disclosure, analyst coverage, and more consistent financials, making valuation metrics (P/E, P/B, P/S) more reliable.
     • This avoids micro- and small-cap names where low valuations might simply reflect distress, illiquidity, or lack of information rather than genuine mispricing.

2. Volume ≥ 0

   • Purpose: Effectively no constraint on trading volume.
   • Rationale:
     • This simply means all listed securities (that trade at all) are included; your colleague chose not to restrict liquidity further, likely to keep the universe broad among mid/large caps.
     • If desired, this could be tightened later (e.g., volume ≥ 500k shares) to ensure easier trading.

3. List Exchange = XNYS, XNAS, XASE (NYSE, NASDAQ, NYSE American)

   • Purpose: Limit results to major U.S. exchanges.
   • Rationale:
     • Aligns directly with “US stock market” as the user requested.
     • Major exchanges have stricter listing standards and better transparency, which supports more trustworthy valuation analysis.

4. Region = United States

   • Purpose: Ensure companies are U.S.-listed/US region-focused.
   • Rationale:
     • Reinforces the focus on the U.S. market and excludes ADRs or foreign listings that might appear on U.S. exchanges but are not truly U.S. companies, depending on how the screener defines region.

5. Annual EPS YoY Growth ≥ 5%

   • Purpose: Filter for companies that are not only cheap but also growing earnings.
   • Rationale:
     • Purely “cheap” stocks can be value traps if earnings are declining.
     • Requiring at least modest positive earnings growth (≥ 5% year-over-year) improves the chance that a low valuation is an opportunity rather than a sign of fundamental deterioration.
     • This aligns with the idea of “undervalued but fundamentally sound.”

6. P/E (TTM) between 3 and 12

   • Purpose: Identify companies trading at relatively low price-to-earnings multiples.
   • Rationale:
     • The P/E ratio is a primary valuation metric: lower P/E often suggests a stock may be undervalued relative to its earnings.
     • A range of 3–12 focuses on stocks significantly cheaper than the broader market (where the S&P 500 often trades well above this range).
     • Lower bound of 3 avoids many ultra-low P/E situations (e.g., potential accounting issues, one‑off earnings spikes, extreme distress), while still capturing meaningfully cheap names.

7. P/S Ratio between 0.3 and 2.0

   • Purpose: Check that the company’s price relative to its sales is also on the low side.
   • Rationale:
     • The P/S ratio is useful, especially for comparing across sectors and for companies where earnings can be temporarily volatile.
     • 0.3–2.0 typically flags stocks that are inexpensive relative to their revenue base; very high P/S can indicate over-optimism.
     • Using P/S alongside P/E helps avoid cases where earnings look cheap for one year but revenue multiples show the stock isn’t really inexpensive.

8. P/B Ratio between 0.3 and 1.5

   • Purpose: Ensure the stock trades close to or below the value of its net assets (book value).
   • Rationale:
     • P/B is especially important for asset-heavy businesses (financials, industrials, etc.).
     • Values near or below 1.0 often suggest the market is valuing the company at or below the net value of its assets, a common signpost for “value” opportunities.
     • The lower bound of 0.3 filters out some extreme cases where the market is signaling severe distress or asset quality concerns, while the upper bound of 1.5 keeps the focus on relatively inexpensive names.

Why Results Match “Undervalued Stocks in the US Stock Market”

• The U.S. region and major exchange filters (Region, List Exchange) ensure all results are from the U.S. stock market as requested.
• The market cap filters keep the universe to mid- and large-cap companies, where fundamental analysis and valuation metrics are more reliable.
• The combination of low P/E, low P/S, and low P/B directly targets classic signs of undervaluation across earnings, sales, and asset value.
• The EPS growth filter adds a quality check, favoring companies that are not only statistically cheap but also growing, reducing the risk of value traps.

Together, these filters are designed to surface U.S.-listed, established companies that look statistically inexpensive on multiple valuation metrics while still showing positive earnings momentum—consistent with what most investors would mean by “undervalued stocks in the US stock market.”