How the screen works

The idea in one sentence

When a healthy business falls in price without falling apart, the gap between what it's worth and what it costs is the opportunity.

The moat

“Moat” comes from Warren Buffett's metaphor: a profitable business is a castle, and the moat is whatever keeps competitors from showing up and stealing those profits. Brands, network effects, switching costs, regulatory licenses, patents. The thing that lets a company keep earning a lot of money on every dollar invested in it, year after year, even when rivals try to copy them.

We can't measure the moat directly, but we can measure its shadow: profitability that holds up over time. A business with no moat sees its profitability eroded by competition. A business with a moat keeps earning above- average returns.

To pass the quality bar, a company must:

• Earn a strong return on equity. ROE of at least 15%. This is the headline measure of whether the business actually turns shareholder money into profit. Most S&P 500 companies clear this bar; the ones that don't are usually struggling.
• Keep debt manageable. Debt-to-equity under 100%, meaning total debt is no larger than total shareholder equity. A leveraged business can post great-looking returns until the next downturn. We'd rather miss those names than buy them at the wrong moment.
• Run on a real profit margin. At least 10% net margin. The business has to convert revenue into actual profit, not just growth metrics.
• Still be growing. Revenue growth of at least 10% year-over-year. A shrinking business with great margins is a slowly-melting ice cube, not a moat.
• Be a real public company. Market cap above $2B. Smaller names get screened out; the data is noisier and the methodology hasn't been tuned for them.

A company has to clear everybar, not most of them. One missing data point or one failing metric and it doesn't reach the next stage.

The dip

A great business at a fair price is fine. A great business at a meaningful discount is the interesting case. The second filter is purely about price: how far has the stock fallen, in absolute terms, recently?

We use three different windows so that names dropping quickly and names that have drifted lower over months both surface:

• Down 15% or more in the last 30 days. Fast moves. Earnings miss, sector rotation, a single headline.
• Down 20% or more in the last 90 days. Slower, more deliberate selling. Often more meaningful than a single-day reaction.
• Down 15% or more from the 52-week high. The widest net: anything still meaningfully below its best price of the past year.

A company qualifies as “on sale” if it triggers any one of those. Most flagged names trigger more than one.

Why fundamentals matter (the value-trap filter)

The screen so far would surface plenty of companies that look good and are cheap. It would also surface plenty of companies that used to look good, are cheap for a reason, and shouldn't be touched. That second group is the classic value trap: the moat has been quietly draining for months while the price catches up to the new reality.

The final filter looks at the most recent quarterly results against the previous quarter, asking: is anything visibly breaking right now? We're not asking whether the business is growing fast. We're asking whether the business is getting worse.

To pass, the most recent quarter must show:

• Revenue not collapsing. A small decline is tolerated; a drop of more than 10% quarter-over-quarter fails the filter.
• Net income holding up. A drop of more than 15% quarter-over-quarter fails. Earnings are noisier than revenue, so the bar is wider.
• Debt not exploding. An increase of more than 20%in total debt quarter-over-quarter fails. Companies frequently take on debt for good reasons, but a sudden jump in a quarter that's already weak is a warning.
• Margins not compressing fast. A percentage-point drop of more than 3 quarter-over-quarter fails. This is the single most common signal that competitive position is eroding.

A name with strong long-term fundamentals (passes the moat filter) and a real discount (passes the dip filter) but obvious recent deterioration (fails this filter) gets tagged a value trap by the scanner and never appears on the site. We'd rather miss good opportunities than show you bad ones.

What we do with the result

Names that pass all three filters appear on the homepage as cards. Clicking one opens a detailed view: the headline summary in plain English, the indicators that determined whether fundamentals are holding up, the recent price history, and the underlying metrics.

On weeks when fewer than five names pass, the grid pads with companies that cleared the moat bar but haven't dipped enough to qualify. Those carry a Quality, not on sale badge so they aren't confused with the real flags. They're shown so the page isn't empty in calm markets; they aren't recommendations.

Where the methodology stops being useful

The screen is a starting point, not a verdict. A few honest limitations worth knowing:

• It's lagging. Quarterly results reflect the world a few months ago. A company that was healthy last quarter and broke in the current quarter looks fine to the scanner.
• It's only the S&P 500. International names, small caps, and recent IPOs are not screened. The S&P is a good universe (well-followed, well-reported) but it's not the whole market.
• It assumes the data is right. Yahoo Finance occasionally serves stale or wrong numbers, especially around earnings releases and corporate actions. We don't cross-check against other sources.
• It doesn't know the story. A drug company down 40% on a failed trial and a retailer down 40% on a sector rotation look the same to the scanner. The qualitative reason for the drop, the most important question for an investor, is the one the methodology can't answer.

The screen does the part that's mechanical: scan hundreds of companies, apply consistent rules, surface the ones that match. The interesting work (reading the 10-K's, understanding why the stock fell, deciding whether you actually want to own the business) is on you.

How often it runs

The scan runs automatically every Sunday at 18:00 UTC. Every result on this site is produced by the rules described above, applied uniformly across the S&P 500. Nothing on this page is a black box.