My screening process for finding undervalued stocks without falling into value traps

Most people screen for undervalued stocks backwards. They start with price and work toward quality. Flip it. The filter funnel I use: Universe (all stocks) ⬇ Filter: ROIC > 12% sustained 5+ years ⬇ Filter: positive and growing free cash flow ⬇ Filter: debt/equity not terrifying ⬇ Filter: identifiable competitive advantage ⬇ \~50 to 80 names survive ⬇ Run DCF with conservative inputs ⬇ Filter: 25%+ margin of safety ⬇ \~5 to 10 names worth researching ⬇ Read 10K, understand business model ⬇ Check insider buying activity ⬇ Final portfolio candidates Each step eliminates most of the universe. That's the point. The quality filters do the heavy lifting before valuation even enters the picture. The last signal I pay attention to is insider buying. Not selling (insiders sell for a million reasons). Open market purchases by executives using their own money. When the CFO drops $500k at current prices that tells me something no screen captures.