What is the Stock Market Winners Screen?
In 1988, finance professor Marc Reinganum published "The Anatomy of a Stock Market Winner" in the Financial Analysts Journal. Instead of asking what makes a good company, he asked a narrower and more useful question: what did the biggest winning stocks have in common before they took off? Reinganum worked backward from 222 stocks that William O'Neil & Co. had flagged as the market's best performers in "The Greatest Stock Market Winners: 1970-1983," studying their fundamentals and price behavior in the quarters just before each run began. The Stock Market Winners Screen is AAII's working adaptation of the traits that study distilled — an attempt to spot the profile of a winner rather than react after the fact.
The core idea
The premise is that a stock about to make a large move tends to look a certain way beforehand, and that the look is a combination, not a single signal. Reinganum found the winners were cheap on assets — most traded below book value — yet they were not dead money. Their quarterly earnings were rising and, more tellingly, accelerating; their share prices were already firm and near two-year highs; and they had small share counts. No one of these traits is remarkable on its own. Stacked together they describe a neglected small company whose fundamentals have quietly turned and whose price has begun to confirm it. The screen blends three styles that usually live apart — value through price-to-book, growth through earnings acceleration, and momentum through relative strength — into one filter.
What the Stock Market Winners Screen looks for
- A price-to-book ratio no greater than 1.5. Reinganum's original rule was below 1.0; AAII raised the ceiling slightly so a few more names clear the full set of filters.
- Earnings per share from continuing operations in each of the two most recent quarters above the same quarter a year earlier.
- Earnings acceleration — the year-over-year growth in the latest quarter greater than the year-over-year growth in the quarter before it.
- A five-year growth rate in earnings per share from continuing operations above zero.
- Weighted relative strength over the last four quarters ranking in the top 30% of the database (percentile rank of 70 or higher).
- A positive pretax profit margin over the trailing 12 months.
- A current price within 15% of the stock's highest price over the past two years.
- No more than 20 million shares outstanding as of the latest fiscal quarter.
- Over-the-counter (OTC) stocks excluded.
Why the Stock Market Winners Screen can work
In Reinganum's sample the pattern was strong: quarterly earnings for the winners jumped an average of 46% and kept accelerating, and the group's returns ran well ahead of the market. That gap was not simply pay for extra risk — the winners were only slightly more volatile than the market, not enough to explain it. Two of the traits do the heavy lifting. The low price-to-book filter keeps the search among neglected, out-of-favor names, where overreaction has long been shown to push prices below intrinsic value. The relative-strength and near-high price rules then insist the market has already started to notice — a guard against buying a cheap stock that only keeps drifting sideways. The small float matters too: 90% of the winners had fewer than 20 million shares before their run, with a median near 5.7 million, and a thin share count magnifies a price move once real buyers arrive.
What to keep in mind
Rules mined from one list of stocks over one 13-year window carry a real hazard — traits that described the winners of 1970-1983 need not predict the winners of the next decade, and the more filters you stack, the more you risk fitting the past rather than the future. The screen is also internally in tension: a strict low-price-to-book neglect test pulling one way, a look-at-me momentum test pulling the other, so in some markets very few stocks satisfy both at once. The small-float requirement, useful for amplifying gains, cuts the other way in a decline — thin stocks are harder to sell and move violently. And because OTC names are excluded, part of the small-company universe the strategy targets is off the table from the start. Treat a pass as a starting list, and read why each cheap stock is cheap.
Sources
The Anatomy of a Stock Market Winner, Marc R. Reinganum, Financial Analysts Journal, 1988; drawing on William O'Neil & Co., The Greatest Stock Market Winners: 1970-1983.
American Association of Individual Investors (AAII) — Stock Investor Pro screen definition.