Cold Eye listed 5 important criteria to pick stock - by Intelligent Investor.

1.    Return on Equity (ROE)

2.    Cash Flow from Operations (OCF) and Free Cash Flow (FCF)

3.    Price-Earning Ratio (P/E)

4.    Dividend Yield (DY)

5.    Net Tangible Asset (NTA) per share

Return on Equity (ROE)

• Investor want to have a reasonable return from the capital for the equity put in.
• The return rate depend on the business risk.
• You would want to have a risk that higher than a risk free rate. Says, bank FD provide interest rate of 4%, you will target for a min return say 10%-15% (6% - 11% above FD rate) for the risk you take.
• [Note]: There is some issues and pitfall on ROE, do perform DuPont analysis on the ROE, or alternately I prefer to use ROIC. 

* Attributing Profit/Total Equity = ROE.

Cash Flow

• Business owner would expect debtors pay you promptly and you don;t have to stock up a lot of inventories which tied up your capital.
• Else, you have to put in more capital each year even you make one.
• Do expect the hard cash received must be about the earnings each year.
• For each year, the business need capex to keep it going (so the owner can ear more in future) - e.g. buy more/replenish equipment, buy/open more shops.
• It would be good if the CAPEX can be met with the cash I received from operations and owner no need to come up with more money.
• It will be fantastic if there is still leftover money to draw out as dividend, or the company can have extra money to invest in other lucrative business.
• Check
• Average OCF same as reported earnings over the years?
• Is FCF in general positive over the years?
• Is the average FCF >= 5% of Revenue?
• [Note]: You may want to read more on Cash Flow Statement Analaysis.

* most of the failed business was caused by bad cash flow.

Price-Earning Ratio (P/E)

• A business might not be a right investment if price is not right. If you buy a business with good ROE (say 30%)  on P/E of 33 will only give you a earnings yield of only 3%, which means the price was too expensive, in another words its over-valued by the market. 
• If the yield is less than FD, you may want to put the money to bank to earn risk free return.
• The prowess in investing is not knowing how to buying great companies at any price, but good companies at a cheap price.
• We should look for company < 10 or < 15 (good company with growth prospect)
•  [Note]: P/E will ignore the debt an cash on the balance sheet. EV and EBIT is a good alternative if an investor want to take care on this item. 

* this will leads you to buy cheap stock.  

Dividend Yield (DY)

• How nice if my bussiness can have extra cash (FCF) after CAPEX investment and the left over money send back to owner as Dividend. (You may want to read more on Cash Flow Statement Analaysis.)
• This way, the owner can have additional money to spend while the business is still growing and the dividend is likely ti increase in the future.
• DY = Dividend per Share for a Year / Stock Price
• It could be a good investment if DY > FD rate.

* Dividend is a granted return for investor. If you able to re-invest the dividend, you will reach to your target sooner.

Net Tangible Asset (NTA) per share

• Investor can recoup the initial investment if the NTA worth more than what he put in.
• If the NTA per share > stock price, you may be in for a bargain.
• More valuable (e.g. hard cash, property, land) asset is better.
• Receivables - debtors might not want to pay me.
• Inventories - it may be outdated.
• Some business (e.g. service industry) where the important assets is not tangible e.g. its technology, brand name, people.

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The cold eye's criteria was very good guide for investor to keep in mind and use to filter bad stock no matter how other people recommend you. 

However, I would like to add another important criteria, that was because there are 2000 of stocks existing in market and we need to get the best out of the best. Future growth prospect, we need to judge how was the management level of the company doing, and the future of the business segment involved. We need to discover some unpopular stocks but possess the growth prospect. In premise, we need to ensure the company is in healthy situation, and the only problem was being too cold or unpopular. This type of stock normally do not or giving little dividend. However, we do gain from the price sooner or later when the price re-rated by the market alone. 

* we need to understand thoroughly the background, financial, on-going or planning projects, everything in order to reduce the risk and maximize the profit from purchasing this type of stock.