So you’ve decided on how much money you can risk purchasing stocks and found the investment platform that will work best for you. Now what? One of the most common things individuals do to help find a stock that fits their needs and knowledge is by utilizing the stock screener tool. Your trading platform will in all likelihood feature a stock screening tool. If not there are free online stock screening tools such as MarketWatch or even Nasdaq.com’s own stock screener.
Ok fine, but what is a stock screener? A stock screener lets you research stocks you may be interested in purchasing based on a number of parameters. You can view data on traded stocks, so long as the information is available, in a smaller setting based on criteria you’re interested in. For example, you can search by sector or industry to view the stocks that trade there.
Before using a stock screener it is important to realize that even if the stock screener provides you with the information you’re looking for, it is paramount to your success that you research the company itself a little further before making any decisions. An uninformed investor is one who may lose all his or her money.
Some common stock screener search criteria I use are:
- Sector
- Industry
- Dividend (does the company offer one? how often? when was the last ex dividend date?)
- Beta (3 Year Annualized)
- Revenue Growth (3 Years)
My reasoning for using this criteria is that I’m familiar with some sectors and industries over others, am seeking returns wherever I can get them, want to see that the company’s stock isn’t volatile and is growing year over year.
Some common stock screen search criteria others use are:
- Top Ratings by Sector – These are usually expert opinions on stocks within each sector of the market. The more experts are bullish on a certain stock the higher its ranking within that sector will be. Analysts opinions are weighed for each stock they have a recommendation on to produce this list.
- Market Movers – This search criteria shows you what has been most active during the course of the day. This criteria may display the volume of shares traded that day, the percentage change in stock price or both.
- Orders – Depending on the trading platform you should be able to see some information on who is buying and who is selling certain stocks on a certain day.
- Analyst Opinions – You will likely also be able to see expert opinions on stocks when using your stock screening tool. Usually a scale from 0.0 to 10.0 will be used. The closer to 0.0 the stock falls means that experts are bearish and the closer to 10.0 the stock falls means that experts are bullish. Dive deeper into this info as sometimes an expert may have a bullish view when everything about the stock suggests a bearish view is in order. This commonly means either the expert or their employer owns shares of the stock.
- Investment Strategy – You may be interested in small cap stocks, mid cap stocks or large cap stocks. However, here we are talking about Market Cap vs. Valuation. This includes value, blended and growth stocks. I, as an example, have a strong foundation of large market cap and growth valuation stocks with large market cap and blended valuation stocks placing second. This is considered a large growth stock style.
- Current Volume – Some experts suggest that stocks trading at over 200,000 shares in a given day are the stocks you need to be looking at. The idea is that strong sales of stocks will push the price.
- Price – This is an important factor. There are stocks often referred to as penny stocks that are too volatile for most investors to dabble in. The price that defines a penny stock varies dependent on who you ask, some say a stock under $1 is a penny stock, while others say a stock under $5 is a penny stock. Use your judgment. Prices can fluctuate, so view patterns when checking out a stock’s price. There are stocks that are good trading ideas at all price levels, but do your research and use your judgment before buying or selling.
While a stock screener is a great tool for receiving quantitative information about stocks there are two other important factors to consider:
1. The information may not be as up-to-date as you would like. If you’re expecting the 3 Year Average to be from yesterday back to 3 years from yesterday, that might not be what you’re seeing. Data and information can be updated at various times and analyst opinions will change often.
2. Qualitative data is never mentioned. You wouldn’t be able to find out about Enron’s insider trading scandal by using a stock screener. The lack of qualitative data means you won’t know about pending lawsuits, SEC investigations, accounting issues, management stability and other information that will impact the stock’s performance and price. In some cases the qualitative data may have a bigger impact on the stock’s performance and price than the quantitative data. So again, do your research and use your best judgment before trading any stocks.
