It's clear: This market -- down nearly 40% this year -- is the opportunity of a lifetime.

It may be the best investing opportunity of the past 35 years, but it's also pretty overwhelming. Over 5,500 companies trading on U.S. exchanges have negative one-year returns -- and that's 90% of the market.

There's no way around it -- there are some crazy bargains out there. Most companies have had their stocks beaten down, but it doesn't mean their revenue or intrinsic value has necessarily gotten a 40% haircut. In many cases, the companies are just as valuable today as they were last year -- it's simply that their stock prices have been cut in half. And for companies that weren't significantly overvalued to begin with, that presents some very attractive values to attentive investors.

But even if you exclude financials, home-builders, and carmakers, all of which are facing very real near-term problems, there's still an awful lot of possibility to wade through.

So how can you focus your search to find the cream of the on-sale crop?

Open the screen door
One way to go about finding some top-flight candidates is screening -- using specific yet broad categories to narrow down your field. To screen successfully, you need to have a sense of what you're looking for in a potential stock.

For example, I like large-cap stocks, because they're often more stable than small-cap stocks. I also like to see revenues and earnings growing at least 10% over the past three years, because when those numbers are growing at a good clip, the value of the company is increasing -- and the stock price will reflect that sooner or later. P/Es vary widely by industry, so it's hard to recommend any particular number to enter as your maximum P/E. Still, you can eliminate many companies with seemingly high P/Es by screening for those with P/Es of, say, 25 or 20 or less. That can help you focus on undervalued stocks.

Although many different websites offer stock screeners, I like the one at our CAPS community. In addition to the usual metrics, CAPS enables me to screen for stocks our community particularly likes, and stocks that have a CAPS four- or five-star rating consistently outperform the market.

I plugged in the following things:

  • Market cap above $10 billion.
  • 3-year revenue and earnings growth at least 10%.
  • P/E below 25.
  • CAPS ratings of 4 or 5 stars.

Those criteria returned 86 stocks -- a much easier number to sort through! Here are some of the companies that were returned:


CAPS stars

Recent P/E

3-yr revenue growth

3-yr EPS growth

Suncor Energy (NYSE:SU)





Transocean (NYSE:RIG)





Qualcomm (NASDAQ:QCOM)





Potash (NYSE:POT)





Petroleo Brasileiro (NYSE:PBR)





Oracle (NYSE:ORCL)










Source: CAPS.

This list alone is a decent starting point from which to do some further digging.

Screening allows you to plug in any criteria that are important to you and to see which stocks hit the mark on those counts. From your research, you'll find many you'll discard. Some you'll add to your watch list -- and some you might actually buy.

Tips for better screening
Screening does a good job of helping you narrow down the field -- but one screen done one time does not a great portfolio make. Here are some tips to help you make the most of screening.

  • Screen early, screen often. Things change, and the best company for your portfolio might miss making the screen this month, but make it next month. Make screening a regular part of your research to help you find new ideas and track the progress of favorites.
  • If a screen gives you too many companies to comfortably deal with, you can narrow the results by tightening your criteria or adding another one. For example, instead of looking for companies with P/ E ratios below 20, you might look for P/Es below 15 or 18. Or you could add that you want net profit margins of at least 10%. You might also simply eliminate companies you don't recognize or aren't sufficiently familiar with.
  • Be wary of loosening your criteria too much. If a screen doesn't return many companies, it may mean there aren't many companies you should consider right now.

The Foolish bottom line
Screens are one helpful way to narrow down the universe of potentially undervalued stocks to the few you might be interested in, but they're no substitute for solid research. Even if the basics you can screen for check out, you'll still want to consider things like the strength of a company's balance sheet (lots of cash? manageable debt?), its competitive advantages (are they sustainable?), its management (does it inspire confidence?), and its promise (is growth likely to continue?).

These are the kinds of things our Motley Fool Inside Value team looks for -- especially in a market like this one, when every other company seems like it might be a great bargain. If you'd like to see what real bargains they're recommending now, just click here for a free, 30-day trial. There's no obligation to subscribe.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Petroleo Brasileiro is a Motley Fool Income Investor pick. The Motley Fool is Fools writing for Fools.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.