I don’t have much of a sweet tooth and don’t often indulge in desserts. But when I do have a craving for something sweet, I’ll often reach for Reese’s Peanut Butter Cups.

For me, this is the blue-chip stock of the candy aisle. Peanut butter and chocolate: “two great tastes that taste great together,” as the announcer puts it in one 1980s-era Reese’s commercial.

Investing can be very similar when you find two investment styles or indicators that work even better in combination. And when it comes to finding stocks with the potential to outperform the market, two of the most reliably predictive factors to look for are: 

✓ Quality and
✓ Momentum

Stocks of high-quality businesses have been proven to outperform over the long run. And momentum, both in price performance and in earnings growth, are likewise top indicators of stocks that can beat the market.

Fortunately for TradeSmith users, we bring together two great indicators of stock performance with our proprietary Business Quality Score (BQS) and Jason Bodner’s Quantum Score.

And yes, they work great in combination.

As a refresher, our TradeSmith research team designed the BQS around four broad categories of quality metrics that matter most in identifying stocks likely to outperform the market: 

• Growth: We screen for growth in sales, earnings, cash flow, and returns on equity and assets to find stocks that are most improved over the last several years.
• Profitability: Next, we take a closer look at a company’s current profitability compared to its own history and compared to other stocks in our database to see what a company earns relative to its size.
• Safety: We screen for stocks with low debt and low credit risk, plus consistent profit growth and low volatility, to single out quality, low-risk stocks.
• Payout: Finally, we determine how much of a company’s profits are used to enrich shareholders and expand the value of the business.

Ultimately, every stock in our database earns a BQS ranging from zero (lowest quality) to 100 (highest quality). This shows you at a glance how any stock measures up across all four key quality metrics. BQS is available with a Ratings by TradeSmith subscription, along with TradeSmith Essentials, TradeSmithPlatinum, and, recently added, TradeStops Pro and TradeStops Elite.

Jason Bodner’s Quantum Edge system aims to consistently uncover the stocks that have the strongest momentum in their favor — both technically and fundamentally.

These are stocks that typically beat analysts’ earnings expectations, delivering high-momentum sales and profit growth. Every day, Jason’s screens pull 120 data points on every stock he tracks. This includes basics like volume, price, and other fundamentals, plus more complex data. 

Then by adding signals from his exclusive Big Money Index to the equation, Jason’s system uses a 29-factor algorithm to rank each stock by its own unique Quantum Score.

Jason’s Quantum Score is available with his Quantum Edge Pro membership, as well as TradeSmith Essentials and TradeSmith Platinum. If you’re subscribed to any of the products I mentioned, you can access these incredibly valuable quality and momentum indicators by simply logging in to TradeSmith Finance every day. (And if you don’t see these tools in your dashboard — and would like to — call 888-623-0858 to discuss.)

Now, here’s how to combine these two great flavors, Quality and Momentum, into a specific stock screener. 

Log in to TradeSmith Finance and select Invest from the top menu bar. Then select the Screener tool and click on + Create new screener. Now, click on +Manage Filters to add the Business Quality Score and Jason Bodner’s Quantum Score indicators, listed under TradeSmith. 

Here’s a screen shot of all the filters I used, and I’ll also list them below. 

First, we want to start with healthy stocks in the Green or Yellow Zone. Next, we aim for stocks that are already trending up or, at worst, in a sideways trend.

Second, for Markets we want to look for well recognized, liquid stocks that belong to a major index. For this screen I chose S&P 500, Nasdaq 100, S&P 400 (MID) and S&P 600 (SML). That way, we can expect a wide range of market caps among our results. But keep in mind: You could filter by other indexes or even specific sectors if you wish.

Next, I want to take these stocks that measure up to our quality and momentum factors – and drill down further to the ones that are also primed to move higher according to our Trade Cycles timing indicators. 

So, I added filters for the Cycle Turn Area: Upcoming Valley and Valley; for the Cycle Period: Composite; and with a Cycle Conviction Level that is Medium, High, or Very High. This way, I can be most confident that the timing is right for a big upside move in the stocks that make the list. (Note these Trade Cyclesindicators are available to Trade Cycles by TradeSmith subscribers.) 

Fourth, here’s where we combine two great indicators. Set the Business Quality Score to more than 75. That will screen out all but the top 25% of stocks in our database ranked by quality.

Fifth, we add Jason Bodner’s Quantum Score and set it to between 70 and 85. 

Now, you might think a perfect score of 100 is better. But a stock that scores 100 just doesn’t have much room for improvement. Remember, Quantum Edge is all about momentum, and you don’t want your stock to get “overheated” and sputter out. That’s why Jason’s research shows the optimum buy zone range is actually between 70 and 85.

Before moving on, save your work for future reference by clicking on Save As New and giving the Screener a memorable name. (I expect this is a Screener you’ll want to revisit again and again.) Then click on Run Screener. 

I got 75 results overall, which is a manageable list for further research. But you can always add filters or boost the BQS range to limit the results. Due to space limitations here, I’ve just shown the top 10 below: 

I initially sorted these results by Health descending but then re-sorted by BQS for a different perspective, shown above. With the BQS, you can never rank too high, and while there are no perfect 100 scores in the results above, they’re all in the high 90s.

Mike Burnick’s Bottom Line: When you combine two powerful stock-screening factors like Business Quality Score and Quantum Score, the result can be a stock research tool that’s even better than the sum of the parts. Two great “tastes” that taste great together!