Who is Jim O'Shaughnessy, and what is the O'Shaughnessy Growth Market Leaders Screen?
James O'Shaughnessy is the quantitative money manager who wrote "What Works on Wall Street" (1996) and later founded O'Shaughnessy Asset Management. The O'Shaughnessy Growth Market Leaders Screen appears in his 2006 book "Predicting the Markets of Tomorrow" and, by his own description, blends the large-cap value ideas and the growth-and-momentum ideas he had tested a decade earlier. It works on his "Market Leaders" universe — a group of big, financially substantial companies he first defined in "What Works on Wall Street" — and finishes with a hard momentum ranking, keeping only ten names.
The core idea
The screen builds in two stages. First it defines a market leader: a U.S., non-utility company larger than the average stock, with more shares outstanding than average, cash flow per share above average, and sales at least 1.5 times the database average. That base is deliberately demanding — it isolates established businesses with the scale and cash generation to weather a downturn. Second, among those leaders, the screen wants stocks that are still reasonably priced and moving. It caps the price-to-sales ratio at the average for the Market Leaders group, requires that earnings per share actually grew over the past year, and then ranks what is left by one-year price strength, buying the ten strongest. Size and quality set the table; value keeps you from overpaying; momentum makes the final call.
What the O'Shaughnessy Growth Market Leaders Screen looks for
- Non-U.S. companies, utility-sector stocks, and over-the-counter stocks are all excluded.
- Market capitalization in the latest fiscal quarter greater than the database average.
- Average shares outstanding in the latest quarter greater than the database average.
- Cash flow per share over the trailing 12 months greater than the database average.
- Sales over the trailing 12 months at least 1.5 times the database average.
- Price-to-sales ratio below the average price-to-sales ratio of the Market Leaders group.
- Positive earnings-per-share growth over the trailing 12 months.
- The final portfolio is the 10 companies with the highest 52-week relative strength.
Why the O'Shaughnessy Growth Market Leaders Screen can work
O'Shaughnessy's research pointed to two factors that held up where others failed: a low price-to-sales ratio, which worked across every size of company, and relative strength, one of the most effective single signals he tested. Pairing them was the point — a value gate reduces the risk of overpaying for a hot stock, while price strength confirms the market has already recognized the value. Restricting the field to market leaders adds a third layer of safety, since large, cash-rich firms have the resources to recover that a struggling small company lacks. He also observed that companies with the biggest one-year price gains tended to keep leading the following year, which is what the ten-stock momentum finish is meant to capture.
What to keep in mind
Ten stocks is a very concentrated portfolio, and a single blowup lands hard when it is a tenth of your money. Relative strength cuts both ways: the same filter that buys last year's winners can put you in at a peak, and momentum reverses sharply. A large-cap tilt also lags in the periods when small caps lead, which by O'Shaughnessy's own 20-year framing can run for years. One practical wrinkle: the price-to-sales ceiling is defined as the Market Leaders' own average, so it drifts each time the screen is re-run rather than sitting at a fixed number. Treat the output as ten candidates to study, not a portfolio to buy blind.
Sources
Predicting the Markets of Tomorrow: A Contrarian Investment Strategy for the Next Twenty Years, James P. O'Shaughnessy, Portfolio, 2006.
American Association of Individual Investors (AAII) — Stock Investor Pro screen definition.