Anybody who’s watching stock markets right now will know it’s been a difficult year so far. But in times like these, there could be some attractive investment opportunities for me to snap up. So here, I’m going to narrow down the stock market using a stock screen. This way, I can shortlist the best shares to buy for me.
Let’s take a look to see what opportunities there are today.
Setting up my screen
I’ve started by looking for companies that are growing their earnings as this is the primary factor that drives share prices higher. To do this, I set my screen to rank companies with earnings per share (EPS) growth forecasts of at least 10%.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Next, I want to consider valuation. It’s great if EPS is growing by 10%, but I don’t want to pay too much for this growth. So, my screen also removed companies with forward price-to-earnings (P/E) ratios greater than 20. Ideally, the lower the P/E, the better, all else being equal.
After setting up my screen, I’m left with 239 shares to choose from. One thing to keep in mind is the cyclical companies that were showing up at the top of the list with huge EPS growth forecasts. For example, Shell is expected to grow EPS by 139% this year. This isn’t surprising given the rallying crude oil price. But for today, I’m going to avoid these cyclical sectors.
Analysing the results
I want to make sure my portfolio is diversified. With this in mind, I’m going to look for three companies in different sectors.
The first share that looks attractive is CentralNic, the internet domain and services company. EPS is expected to grow an impressive 30% this year, and the forward P/E is only 11. The recent three-month trading update to 31 March was positive, in my view, with the directors saying CentralNic is trading comfortably in line with expectations. It’s been acquisitive over the years though, so this does come with increased integration risk.
Asset management businesses can be really profitable once they reach scale. So, on my screen, I see Liontrust Asset Management as a potential investment. The forward P/E ratio is only 10, and the forecast for EPS growth is 41%. This is a highly profitable business with an operating margin of almost 40%. The issue recently has been a weak stock market, which reduces Liontrust’s assets under management, and therefore fee potential. So there’s a chance that EPS might not grow at 41% this year. Nevertheless, I think this risk is priced into the shares.
Lastly, Bloomsbury Publishing also ranks highly in my stock screen and it’s one I already own. It’s a publisher of books and other media, and the original publisher of the Harry Potter series. There’s always a risk that future book publications aren’t successful as it’s a competitive industry. However, Bloomsbury has been diversifying its offerings recently in the online academic sector.
The UK shares I’m buying
Here’s my final 3-stock shortlist:
| Company | EPS Forecast | P/E |
| CentralNic | 30.4% | 10.8 |
| Liontrust Asset Management | 41.3% | 9.8 |
| Bloomsbury Publishing | 28.1% | 16.9 |
There are certainly still risks to consider. Inflation and a cost-of-living crisis are major macroeconomic factors. But these three shares offer attractive growth forecasts and reasonable valuations. So I’m taking a long-term view and buying them for my portfolio.
