This screens for stocks in the S&P 500 large-cap universe that satisfy two major components:

• Insider buying: when executives inside the company purchase shares
• Stock volatility: historical fluctuations in a security’s price relative to the market movements

Insider buying: signifies that those closest to the company and most “in-the-know” feel that the company is undervalued at its current market price. This is a sign of confidence from executives whose compensation is tied directly to the company’s future performance. Read more here from investopedia

In backtesting thousands of companies’ data, we have found that insider buying is a good indicator of future favorable performance. Our objective is to benefit from the upward pressure of a given stock as these insider transactions occur. To limit risk and control for companies in rapid growth phases, we only allow the top third of companies in the S&P 500 as measured by total insider transactions that involve a net purchasing of shares.

Volatility: The other factor theme in this screener is to remove companies whose share price movements score (volatility) is higher than  67% of the broad market’s. We screen for companies with a current beta of under 0.67. This helps us identify stocks that have historically been more stable than the market.

For context, beta is an indicator that tells you how volatile a stock has been compared with the S&P 500. For example, a beta of 1.25 indicates that the stock’s movements have been 25% greater, on average, than the index’s. Instituting a screen with a beta of less than 0.67 means the companies included have had price movements less than two-thirds as large as those of the S&P 500.

After screening for insider buying and volatility, there would still be far more stocks remaining than a retail investor could invest in and keep the portfolio up to date. Therefore, we want to rank the results by some more factors.

We continue leveraging data and to find factors that best measure underlying financial conditions of companies to narrow down the securities that match the screener’s methodology. There are no “good” or “bad” factors, only correlations and dependencies among factors that naturally change over time and it’s always good to revisit the calculations over time. 

During testing, we rigorously looked for the best indicators within each stock and weighted their influence on the rankings portion of this screener by how much extra returns historically they’ve provided.

These are the ten factors that are then used to rank stocks after they’ve passed the two aforementioned screens. We have listed them below in order of influence:

Price to Sales (P/S)
Enterprise Value to Sales (EV/S)
Price to Free Cash Flow (P/FCF)
Net Profit Margin
Operating Margin
Asset Turnover
P/E Ratio again, but this time including Research and Design (R&D) expenditures
Previous Positive Earnings Quarters
Shareholder Yield
Short Interest Float

If some of these terms are foreign to you, feel free to reach out to us to explain more, or head on over to our glossary page here.

This screener uses the S&P 500 stock universe. This removes penny stock data in the backtest that could be included, such as a company that goes from $0.01 to $0.02, which could incorrectly appear as a 100% gain. The unfortunate reality with penny stocks is that it’s often too challenging to enter positions in these illiquid stocks. Therefore, we determine it unrealistic for backtesting, and although it would be nice to advertise higher potential gains, we opt to be straightforward and only include S&P 500 companies that are large enough to invest easily in.

So with this screener limited to the large-cap S&P 500 companies, investors should see closer bid-ask spreads when entering/exiting positions. These closer spreads imply less slippage for the investor. Only the top 5 ranked stocks pass through the screener. 

When backtesting this screener to the start of 2000, the data speaks for itself. The strategy not only has surpassed the S&P 500 growth rate in backtesting, but it also assumes far less less downside risk in the portfolio as shown by its Sharpe and Sortino ratios. Screening for low beta stocks is a large influence as to why that is.

This approach’s ability to succeed in bear markets sets it apart from many other screeners. While the returns may somewhat resemble those of the market in bull runs, this screener’s backtest data shows a 7.75% outperformance of the broad market in downturns *per quarter*. Overall, this demonstrates 1.94% outperformance per quarter compared to the S&P 500 in backtesting.

Backtesting back to 2000, there have only been 24 quarters in which the screener lagged the broad market by more than 2%. On the contrary, there have been 48 quarters in which the screener outperformed by 2% or more.

From an execution standpoint, someone following along with this screener is only turning over, on average, six companies per quarter. Since we’re limited to the S&P 500 universe, these are easier transactions to make than many other small-cap stock investments because every time you want to buy or sell, there should be a fair offer on the other side of the trade. There shouldn’t be worries about an order not filling.

The metrics below derive from rigorous backtesting and account for survivorship bias, look-ahead bias, market liquidity, and data mining. The data originates from an industry-leading data set and is current as of January 2025.