[TOC]

Introduction

This project presents a Chinese stock selection strategy, utilizing a variety of financial indicators to evaluate and score stocks within the Chinese market. The strategy is designed to identify stocks with strong financial health and growth potential by applying rigorous filtering criteria and a multi-step scoring process.

Key Features:

• Comprehensive Financial Screening: The strategy employs a broad range of financial indicators to filter out stocks that do not meet specific financial criteria, such as debt-to-asset ratio, revenue growth, EBITDA growth, and more.
• Scoring Mechanism: After filtering, each stock is given a score based on its financial performance across several metrics, including net profit growth, ROE growth, and free cash flow. This scoring helps rank stocks based on their potential for returns.
• Dynamic Adjustments: The algorithm incorporates dynamic conditions, such as large-scale asset growth, to ensure that the stock selection remains relevant and adaptive to changing market conditions.

Objective:

The main objective of this algorithm is to systematically identify high-quality stocks within the Chinese market that are likely to outperform, based on their financial health and growth prospects. By applying both stringent filtering criteria and a detailed scoring system, the strategy aims to create a robust portfolio that balances growth potential with financial stability.

Author: (Cholian) Chao Li

Contributor: (Russell) Yuxuan Zhou

Contact: [email protected]

Environment

Python

Version: Python3.9

conda create -n alphaStock python=3.9
activate alphaStock 
conda install -c anaconda ipykernel
ipython kernel install --user --name=envname

pip3 install pandas
pip3 install numpy
....
(TBA)

Wind

Download: Wind

Install wind python add-in:

Wind-我的-插件修复-修复Python接口

MySQL

Wind
-stockdata
    --stock_code varchar(64) not null
    --date  date not null
-pg_tables
    --tablename varchar(255)
-constituents
    --sectorid varchar(20)
    --date date
    --stock_code varchar(9)
    --stock_name varchar(16)

Run

python StockSelector_V2.0.py

---

The main structure of the strategy

Step1: Filter stocks according to the financial indicators

No.	Specific Indicator	Filter Value	Year
1	Debt-to-asset ratio	＜60%, otherwise eliminate	Last 1 year
2	Operating income	Compound annual growth rate (YoY) > 15% in the last three years, otherwise eliminate	Last 3 years
3	EBITDA	Compound annual growth rate (YoY) > 10% and no negative value in the last three years, otherwise eliminate	Last 3 years
4	Net profit excluding non-recurring gains and losses	Compound annual growth rate (QoQ) > 10% in the last three years, otherwise eliminate (negative values allowed)	Last 3 years
5	Return on assets (ROA)	ROA has increased (end: beginning) and the absolute value is not lower than 5 in the last three years	Last 3 years
6	Total asset turnover + Net profit margin (new)	Neither of the two indicators has declined simultaneously (end: beginning) in the last three years, otherwise eliminate	Last 3 years
7	Gross profit margin	Comprehensive gross profit margin > 15%, otherwise eliminate	Last 3 years
8	Growth rate of accounts receivable + notes receivable / Growth rate of net profit	Annual growth rate of accounts receivable + notes receivable < Growth rate of net profit in the last three years, otherwise eliminate	Last 3 years
9	Growth rate of operating cash flow (OCF)	Average annual growth rate over the past three years is not lower than 50% of the average annual growth rate of net profit excluding non-recurring gains and losses, otherwise eliminate	Last 3 years
10	Free cash flow per share (new)	The company’s free cash flow per share cannot be negative in any of the last three years, otherwise eliminate	Last 3 years
11	Proportion of R&D expenditure	Proportion of R&D expenditure to revenue > 8% in the last three years, otherwise eliminate	Last 3 years
12	Capitalization rate of expenses (new)	Cumulative development expenditure < 50% of R&D expenditure in the last three years, otherwise eliminate; development expenditure to revenue < 15%, otherwise eliminate	Last 3 years
13	Audit opinion	Retain stocks with "standard unqualified opinion" or "unqualified opinion with emphasis on matters"; otherwise eliminate	Last 3 years
14	Accounts receivable, notes (new)	Growth rate of accounts receivable + notes in the last three years < 1.5 times the growth rate of operating income in the same period, otherwise eliminate	Last 3 years
15	Proportion of goodwill to net assets	Proportion of goodwill to net assets < 30% in the last year, otherwise eliminate	Last 1 year
16	PEG/PB (new)	PE/Growth rate of net profit < 2.5 and PB < 15 in the last year, otherwise eliminate	Last 1 year

Step2: Give each stock a score

No.	Specific Indicator	Filter Value	Year	Scoring Weight
17	Net profit growth rate (YTD) (new)	Score based on the growth rate of net profit for the current year (wind consensus forecast), standard deviation	Last 1 year	15%
18	Operating income growth rate (YTD) (new)	Score based on the growth rate of revenue for the current year (wind consensus forecast), standard deviation	Last 1 year	15%
19	ROE (new)	Score based on the growth rate of ROE over the last three years (standard deviation)	Last 3 years	15%
20	Ratio of average annual growth rate of three expenses to revenue growth rate	Score based on the ratio of the average annual growth rate of total expenses to the average annual growth rate of operating income, the smaller the ratio, the higher the score	Last 3 years	10%
21	Free Cash Flow (FCF)	Score based on the average annual growth rate of free cash flow, (A) Net operating profit after tax + (B) Depreciation and amortization - (C) Capital expenditures	Last 3 years	10%
22	PEG (YTD)	Static valuation / Growth rate of net profit for the current year (wind consensus forecast), the smaller the ratio, the higher the score	Last 1 year	35%

Step3: Specific conditions

No.	Specific Indicator	Filter Value	Year
26	Large-scale asset growth (new)	Filter companies whose total assets have increased by >30% and net assets by >20% in the last year, and then proceed to the filtering and scoring from item 7	Last 1 year

Result

Score

	stock_name	Total Score	Position Weight	Net Profit	Main Business Revenue	ROE Compound Growth Rate 3Y	Average Expense Growth Rate/Average Revenue Growth Rate 3Y	FCFF Average Growth Rate 3Y	PEG/Net Profit YoY Growth Rate (Wind Consensus Forecast) 1Y
300142.SZ	Watson Bio	61.1273	0.0958		14.6771	1.1979	1.2826	8.9697	35.0000
000893.SZ	Asia Potash	60.5953	0.0950		14.9365	15.0000	3.5965	9.3629	17.6992
600859.SH	Wangfujing	56.7175	0.0889		13.7608	5.8406	10.0000	9.2494	17.8666
300937.SZ	Yao Yigou	51.3596	0.0805		14.6833	0.0000	0.1051	8.8787	27.6926
605090.SH	Jiufeng Energy	49.0256	0.0769		13.1951	1.6207	5.2095	0.0000	29.0002
000668.SZ	Rongfeng Holdings	46.4770	0.0729		14.9938		1.4140	9.6154	20.4537
603329.SH	Shanghai Yashi	45.2905	0.0710		14.7629	4.3051	0.0000	9.1685	17.0540
605368.SH	Lantian Gas	44.1114	0.0692		14.6339	3.0091	3.5489	9.5837	13.3359
002129.SZ	Zhonghuan Semiconductor	42.4666	0.0666		10.9644	5.6274	3.0350	8.3181	14.5218
832566.BJ	Zitonggong	40.7383	0.0639		14.9769	2.8944	0.5458	9.4335	12.8876
300825.SZ	Aerte	39.2601	0.0615		14.8932	3.4032	1.5761	6.7987	12.5889
601225.SH	Shaanxi Coal	35.8590	0.0562		0.0000	3.5037	3.5146	10.0000	18.8406
300662.SZ	Career International	32.8170	0.0514		14.3272	2.7413	2.3587	6.9309	6.4589
300987.SZ	Sichuan Media	32.0281	0.0502		15.0000	3.2407	3.9659	9.8216	0.0000

Backtesting

Stock Code	Stock Name	Total Score	Position Weight	Adjustment Date	Cost Price	Market Value	Position Quantity
300142.SZ	Watson Bio	61.1273	9.5830%	2022-05-16	49.98	95829.86	1917
000893.SZ	Asia Potash	60.59527	9.4996%	2022-05-16	39.02	94995.78	2434
600859.SH	Wangfujing	56.71747	8.8917%	2022-05-16	23.01	88916.53	3864
300937.SZ	Yao Yigou	51.35964	8.0517%	2022-05-16	29.45	80517	2734
605090.SH	Jiufeng Energy	49.02557	7.6858%	2022-05-16	27.31	76857.87	2814
000668.SZ	Rongfeng Holdings	46.47696	7.2862%	2022-05-16	12.2	72862.38	5972
603329.SH	Shanghai Yashi	45.2905	7.1002%	2022-05-16	16.19	71002.36	4385
605368.SH	Lantian Gas	44.11144	6.9154%	2022-05-16	13.04	69153.94	5303
002129.SZ	Zhonghuan Semiconductor	42.46664	6.6575%	2022-05-16	39.55	66575.36	1683
832566.BJ	Zitonggong	40.73827	6.3866%	2022-05-16	16.9	63865.77	3779
300825.SZ	Aerte	39.2601	6.1548%	2022-05-16	19.17	61548.44	3210
601225.SH	Shaanxi Coal	35.85895	5.6216%	2022-05-16	17.26	56216.43	3257
300662.SZ	Career International	32.81697	5.1447%	2022-05-16	48.52	51447.48	1060
300987.SZ	Sichuan Media	32.02813	5.0211%	2022-05-16	20.03	50210.8	2506

Designing

Input

filter_precedure

score_precedure

Processing

Output

See the demo