How we find stock ideas for the Opportunity Pot

There are hundreds of stocks I could invest in. So where do I start?

Rather than beginning with a random list of companies or simply looking at which stocks have performed well recently, I start by asking what is changing in the market and which businesses could benefit.

This is Stage 1 of our Opportunity Pot investment process, finding stock ideas.

At this first stage, I am not trying to decide what to buy. The objective is to narrow a much larger investment universe down to a shortlist of around 20 companies worth investigating further.

I broadly do this in three steps.

1. Start with what is changing

We start with the big picture.

Markets are shaped by changes in interest rates, economic growth, currencies, commodity prices, government policy and longer term structural trends. These changes can create opportunities for certain industries and businesses.

For example, falling interest rates can reduce borrowing costs and make income generating assets more attractive. Rising infrastructure spending can support demand for construction materials, engineering services and equipment.

Likewise, the growth of AI and data centres can create opportunities beyond technology companies themselves. Higher investment in data centres may increase demand for electrical systems, cooling, power infrastructure and engineering services.

Here are some examples of where we might start looking.

Some of these opportunities are cyclical. Falling interest rates or a recovery in economic activity, for example, may create opportunities over a particular part of the market cycle.

Others are more structural, such as AI investment, infrastructure spending or Singapore's development as a wealth management hub, which could play out over many years.

Neither is automatically a better investment opportunity. What matters is whether the change can eventually have a meaningful impact on a company's revenue, earnings or returns.

A compelling theme is therefore only a starting point. The next question is which companies could actually benefit from it.

2. Find the companies that could benefit

Once I identify a theme, I start mapping out the companies with meaningful exposure to it.

I am not looking for companies that can simply be associated with a popular theme. I want to understand whether the development could make a real difference to their businesses.

Take data centres as an example.

If investment in data centres continues to grow, the most obvious idea might be a data centre operator. But the opportunity can extend much further because data centres also require electricity, cooling systems, equipment, engineering services and physical infrastructure.

This means I might look at companies across different parts of the supply chain rather than focusing only on the most obvious beneficiaries.

The same applies to infrastructure spending. Beyond construction companies themselves, higher infrastructure investment may benefit construction material suppliers, engineering companies and other businesses that see stronger demand as projects move forward.

At this point, I would ask three questions:

1. Does this company have meaningful exposure to the theme?
2. Could the opportunity make a material difference to its revenue or earnings?
3. Is the company positioned to benefit more than some of its competitors?

The second question is particularly important.

A company might have a small AI related business, for example, but if it contributes only a tiny share of revenue, strong growth in that segment may not change the overall investment case very much.

Likewise, a company may describe itself as benefiting from higher infrastructure spending, but I would want to understand whether this is actually translating into new contracts, stronger orders or higher revenue.

I am therefore not looking for a company that can simply be linked to a theme. I am looking for one whose earnings could actually change because of it.

3. Look for signals that reinforce the opportunity

The strongest stock ideas often emerge when several pieces of evidence start pointing in the same direction.

Alongside the top down themes we are monitoring, we also look at what is happening at the company and industry level. This includes company results, corporate announcements, management guidance, industry data, analyst research, broker upgrades, dividend announcements and M&A activity.

We also draw on the market developments we follow through Beansprout's weekly updates, sector research and conversations with our community.

Suppose, for example, that government infrastructure spending is increasing.

That gives me a reason to look at companies exposed to construction and engineering. The opportunity becomes more interesting if contractors are also reporting stronger order books, companies are guiding towards higher demand, and new projects are moving into the construction phase.

Likewise, stronger AI investment becomes more meaningful for a company if it is already reporting higher orders from data centre customers or seeing that demand translate into revenue growth.

I am not expecting every signal to be positive. Instead, I am looking for independent pieces of evidence that suggest the opportunity is becoming more than just a market narrative.

When the macro theme, industry developments and company specific evidence start reinforcing one another, the company becomes more worthy of further investigation.

That still does not mean I am ready to invest. At this stage, I have not yet decided whether the company's balance sheet is strong enough, whether its earnings are sufficiently attractive, whether management is executing well or whether the valuation makes sense.

A theme earns a company a place on my research list. It does not earn the stock a place in my portfolio.

The output: A shortlist of around 20 stock ideas

At the end of Stage 1, the aim is to reduce the investment universe to a focused shortlist of around 20 stock ideas.

For each company, I should be able to answer two basic questions.

I am not adding a stock to the shortlist simply because its share price has risen, because it is being widely discussed, or because it is associated with a popular investment theme. There should be a clear reason why something is changing and a clear link between that change and the company's business.

The shortlist is deliberately broader than the number of stocks I would eventually invest in. Some ideas will fail the financial screen, while others may look attractive financially but become less compelling once I study the business, management or valuation more closely.

That is what the later stages of the process are designed to uncover.

What happens next?

Stage 1 tells me where to look, while Stage 2 screens these growth stock ideas to see whether the numbers support the story.

For the companies that make it onto our shortlist, we next look at objective financial measures including revenue and earnings momentum, balance sheet strength and return on equity.

You can also see how these measures are applied across Singapore-listed companies using our Growth Stock Screener.

A company may be exposed to an attractive theme, but if its earnings are deteriorating or its balance sheet is weak, that gives me a reason to be more cautious. Conversely, if the financial numbers are also moving in the right direction, the company may deserve deeper research.

Finding stock ideas is therefore not about trying to predict which stock will go up next. It is about identifying what is changing, finding the companies that could benefit, and looking for evidence that the opportunity is becoming real.

From there, we can decide which ideas deserve to move to the next stage of our investment process.

Ultimately, I am mindful that individual stock picking sits within the Opportunity Pot in Beansprout's Four Pots of Wealth. I would only invest in stock ideas where the potential upside is clear, the risks are understood, and the full investment process has been followed.

If you are looking for greater clarity on the markets and the investment decisions that matter, explore Beansprout Pro for our latest views, portfolio thinking and the reasoning behind each opportunity.

See how we would invest S$100,000 in Singapore stocks today with Beansprout Pro's model portfolio.

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