A couple weeks ago, I outlined a simple screen that filtered out stocks that were not only trading at low price-to-sales metrics but also had raised earnings guidance within the prior four weeks.

When we ran the screen, United Continental Holdings (Nasdaq: UAL) rose to the top of the list. If you took advantage of that call, you soon found out just how powerful a scan that was. Shares of UAL traded up about 16% over the month.

This time around, I have a scan to share with you that is even more powerful. (As always, I shared it with my Extreme Tech Profits members first, of course.)

In a recent five-year backtest of the system, using a one-week rebalance period, and testing from October 18, 2013, to October 19, 2018, the system produced the following results (our system is the green line, the red line is the S&P 500):

(click here for a larger version of this image)

When we break down the numbers, we get the following results:

— This system turned $10,000 into $75,841 in just 5 years
— That is an annual compounded ROI rate of 49.5% per year
— This compares to the S&P 500 which averaged 11.0% over the same period
— Average weekly return was 0.9%
— Max drawdown was -38.6%

So what components go into this “system on steroids”? The key component here is price momentum. I’ve been building trading systems for over 20 years, and I can say with great confidence that the most profitable systems always contain some element of price momentum.

#-ad_banner-#In addition, we have two more key components: low Price/Sales, and a low average broker rating. By “low,” I mean a rating of either a “1” (strong buy) or a “2” (buy”) as a consensus of all the analysts covering the stock. And I also have added a volume filter to make sure we are not trading thinly traded stocks.

Putting these things together, our stock scan looks something like this:

Price/Sales < 0.5 (this is very low, and the real key to the screen’s success)
— Average Broker Rating < 2.1
— Average Daily Volume > 50,000 shares
— % Change in Price over 24 weeks = Top 20 stocks
— % Change in Price over 12 weeks = Top 10 stocks
— % Change in Price over 4 weeks = Top 3 stocks

Note that this screen first looks for stocks with low valuation based on sales per share, then takes the passing candidates and weeds out only those stocks that the analysts have rated a “buy” or better, and from there we then have three momentum filters that look at long-, medium-, and short-range price momentum.

At each of those stages, we whittle the list down until, in the end, we wind up with only three stocks.

The fact that we are only trading three stocks explains why this screen has a fairly high maximum drawdown. With only three stocks in our portfolio, the lack of diversification means we are taking on quite high single-stock risk. But as is almost always the case in investing, there is no reward without risk, and the higher the reward, the higher the risk.

So what stocks passed the scan this week? Here they are:

— Ingles Markets (Nasdaq: IMKTA)
— Scansource Inc (Nasdaq: SCSC)
— Resolute Forest Products (NYSE: RFP)

These are listed in the order of increasing price-to-sales ratio. Ingles Markets, with a P/S ratio of only 0.16, would, therefore, be the best of the three, in my opinion.

While these three stocks are certainly worth further investigation, they should not be considered “buys” on their own. But feel free to research these names on your own — after all, they could turn out to be big winners.

They are also not official picks for my Extreme Tech Profits portfolio (that’s reserved for my subscribers, of course). This screen was originally presented to my premium readers as a “bonus” to the picks they already get — and those are the ones I think have the most potential to deliver the absolute highest gains…

Our main focus in Extreme Tech Profits is to look for market-crushing gains in areas like artificial intelligence, cybersecurity, the cloud, the internet of things, robotics and more. If you’d like to know more about our latest research and get your hands on all of my current picks, then you should check this out right now…