Stock Screeners 101

Introduction

Stock screeners are indispensable tools for modern investors and traders who want to identify opportunities in a large universe of stocks. At its core, a stock screener is filter that allows users to identify stocks based on specific criteria. Stock screeners are pivotal in streamlining the stock selection process, allowing individuals to navigate the vast and complex world of stock market analysis with greater ease and precision. Whether for seasoned traders or novice investors, understanding and utilizing stock screeners can significantly enhance decision-making and strategy development in the stock market.

Basics of Stock Screeners

Finding the right stock to invest in is like searching for a needle in a haystack. In a vast universe of stocks (~5000), how do you identify the stocks that meet certain criteria?

Enter the stock screener - an analytical tool used by investors and traders to filter stocks based on user-defined criteria. These tools are primarily designed to sift through the vast array of stocks available in the market to find those that meet specific financial and operational metrics.

How Do Stock Screeners Work?

At their core, stock screeners work by listing stocks based on a variety of data and metrics that can then be filtered for certain conditions. These can range from basic financial indicators like earnings per share (EPS), price-to-earnings (P/E) ratio, market capitalization, and dividend yield, to more complex measures such as historical performance, debt-to-equity ratio, and growth projections. Filtering on these metrics allow investors to tailor their stock search to match their investment strategies, risk tolerance, and financial goals.

Benefits of Using Stock Screeners

Stock screeners offer significant advantages for anyone involved in stock market investment.

• Efficiency: Quickly sort through thousands of stocks to find those that meet specific criteria, saving an immense amount of time that would otherwise be spent manually analyzing each stock.

• Completeness: Stock screeners ensure that all stocks that meet specific criteria are listed and highlighted for further analysis. This is beneficial in identifying investment opportunities that might otherwise be overlooked in a manual analysis.

• Up-to-Date: The data in most stock screeners is updated in real time. This means that you can update your target stocks based on market changes.

What to Look for in a Stock Screener

When selecting a stock screener, there are several key features and functions that investors should consider to ensure they are getting the most effective tool for their needs.

1. Customizability: The ability to customize filters and criteria is essential. An effective stock screener should allow users to set parameters that align with their specific investment strategies and goals.

2. Range of Filters: A wide range of filters, including financial, technical, and fundamental metrics, is crucial. This diversity enables investors to screen stocks based on varied aspects such as market cap, earnings growth, dividend yield, and more.

3. Up-to-Date Data: Ensure that the data presented in the stock screener is continuously updated. This ensures that decisions are based on the most current market conditions.

4. User Interface and Usability: The ease of use and clarity of the interface can greatly impact the efficiency with which investors can identify potential investment opportunities.

5. Historical Data Access: Access to historical data is vital for analyzing how stocks have performed over time, helping to identify trends and patterns that may influence future performance.

6. Integration with Other Tools: The ability for a stock screener to integrate with other investment tools and platforms can enhance an investor's overall strategy and analysis capabilities.

Popular Stock Screeners

There are several well-known stock screeners available that cater to a variety of investor needs. Here are a few examples:

1. Finviz: Known for its easy-to-use interface and comprehensive range of filters, Finviz allows users to screen stocks based on technical, fundamental, and descriptive metrics. It's particularly favored for its visual approach to data presentation.

2. Yahoo Finance: A popular choice for its integration with the extensive financial information available on Yahoo Finance. It offers a range of basic and advanced screening options, suitable for both beginners and experienced investors.

3. TradingView: Preferred by technical traders, TradingView provides a range of technical analysis tools and real-time data, along with a user-friendly interface and community-driven insights.

Each of these screeners offers unique features and functionalities, catering to different styles and approaches to stock market investing.

How to Use Stock Screeners Effectively

Using a stock screener effectively involves more than just knowing how to operate the tool; it requires a strategic approach to setting up and applying screening criteria. Here's a step-by-step guide:

1. Define Investment Goals: Before starting, clearly define your investment objectives, such as growth, income, or value investing.

2. Choose the Right Screener: Select a stock screener that aligns with your investment style and offers the features you need.

3. Set Up Screening Criteria: Based on your investment goals, set up appropriate filters. This could include financial metrics like P/E ratio, market cap, or dividend yield, or technical indicators like moving averages or RSI.

4. Test and Adjust Filters: Initially, you may need to test and tweak your filters to refine the results. This might involve adjusting threshold values or adding/removing criteria.

5. Analyze Results: Once you have a list of stocks, conduct a thorough analysis to understand why they meet your criteria and if they truly align with your investment strategy.

6. Continuous Monitoring: Regularly review and adjust your screening criteria to reflect changes in market conditions or your investment strategy.

7. Combine with Other Research: Use the results from the screener as a starting point and combine them with other research methods for a comprehensive analysis.

Effective use of stock screeners is about balancing the use of technology with informed investment decision-making.

Use Cases

Here are some common use cases for stock screeners:

1. Growth Investing: Filter companies with a consistently high rate of earnings growth and strong future growth projections.

2. Value Investing: Find undervalued stocks by filtering for low P/E ratios, strong balance sheets, and stable dividend histories. A great example of this is the Magic Formula screener utilized by Joel Greenblatt.

3. Diversification: Select stocks from different sectors with low correlation to each other, ensuring that a downturn in one sector won't significantly impact the overall portfolio.

4. Short Screener: Identify possible short candidates by filtering for stocks with high cash burn rates, low tangible equity and stagnant growth.

Where to from Here?

You've filtered for the stocks that meet your criteria and have a shortlist of investment candidates. Now what?

It's important to note that while stock screeners are very useful in identifying potential investment candidates, they are only as good as the filters that have been applied. Their power in applying standardized rules to a large cohort of stocks is also a limitation - the will miss any nuance or company specifics that are not contained in the underlying filters. It is important to conduct more detailed research into the shortlist of stocks before making a final investment decision. This might include fundamental analysis, building a DCF model or reading news, financial statements and attending a few earnings calls before making a final decision.

Build your Own Stock Screener with the findl API

The screeners above are phenomenal resources but as with most things, the generalized nature of the tools means that they will have some limitations. For example, if you'd like to screen on niche ratios or calculations, or if you want access to deep and complete historical data, these tools might be limited. If you want complete control over your stock screener, consider building your own using the findl API.

Conclusion

Stock screeners have become an essential element in modern stock market analysis. Their ability to quickly filter and identify stocks based on a wide array of criteria enables investors to navigate the complex and voluminous world of stock investing with greater ease and accuracy. From saving time in identifying potential investment opportunities to improving the accuracy and efficiency of investment research, stock screeners are a useful tool in any investors arsenal.