So many stocks, so little time. Even in a down market, investors are looking for good prospects. But in a universe of thousands of stocks, how to narrow them down to a list of ones to research and buy?
You could, of course, head straight to your favorite chat room or message board and take the advice of every stock jockey touting a favorite small-cap issue. Or you could tune into CNBC and hang on the every word of the pundit-of-the-day.
But you know better, don’t you? Instead, get to know one of the Web’s many excellent free stock screeners.
Think of screeners as giant sifters, looking for nuggets of gold. Screeners are software-based programs that search for stocks based on the parameters you set. They winnow the vast universe of stocks step by step, eliminating ones that don’t meet your criteria, until they leave you with a handful of good prospects.
Screeners are particularly useful in a bear market, says Marc H. Gerstein, director of research for Market Guide (www.marketguide.com). “It didn’t sound like a big deal a year ago, but screeners show you stocks that are not necessarily hyped by the news, that may be boring but are now of interest because they’re a great value.”
Screeners perform a valuable service, he says. “So much is written about how an investor can go about choosing investments, but almost all is geared toward having a stock in mind, and how to research it,” Gerstein says. “But for most people, it’s how you decide on how to choose a stock in the first place that makes the difference.
“If your list of stocks is bad, you’re dead. If you’re looking at a good list, you can afford to be less precise in evaluating management, which most investors really can’t, or evaluating technological innovation. Stock screens define a group of stocks that gives you a good head start.”
Screeners, unless they are preloaded, won’t do everything for you. You have to know what sorts of stocks you’re looking for: value, low-price/earnings ratio, retail stocks, low debt, fast-growing earnings, small-caps?
What if you’re not that far along in your investing prowess? Head to one of the many Web sites that has preloaded screeners, that is, screeners where somebody else has chosen the criteria. The good ones will explain their criteria carefully, so you can judge for yourself whether they fit your investment philosophy.
One of the best is on Quicken.com, which has preset screens that can get you comfortable with the concept. Go to “Investing,” then “Stock Screeners.” The section called “Popular Searches” contains preloaded screens based on value and growth. “Easy Step Search” runs through the various parameters: industry classes, market capitalization, valuation, dividend yield, growth rates and price. Each is thoroughly explained in an easy-to-understand format. Another good set of preset screens for beginners is on the site of Chicago-based Morningstar, at www.morningstar.com. Find them under “Stocks.” These screens look for “profitable, but unloved” stocks, “blue-blood blue chips,” “cheap small caps” and “tech titans,” among others. The titles may be on the flip side, but the screens are grounded in solid fundamentals, all of which are clearly set out. Advanced screening requires a paid membership ($9.95 a month).
One of the most comprehensive tutorials on how to use screens is at www.marketguide.com. It will take you through the basics and beyond, and is particularly good on how to use the site’s free NetScreen, which includes about 80 variables.
Motley Fool’s screens (www.fool.com) have fans among beginners. Under “Stock Research,” look for “Stock Screens.” You have to register (free), but the screens are limited.
CNBC’s screener (www. cnbc.com; find it under “Research Center”) makes you do all the work. You have to enter values for the things that matter to you, such as sales increase, inventory turnover, return on equity (72 in all). For each item, click on it to find an explanation, average range and how it’s typically used.
At MoneyCentral (www.investor.com) find popular free screeners (click on “Stock Screener” under “Stocks”). Preset screens include the Dogs of the Dow; stocks with high momentum; cheapest stocks of large, growing companies; and highest-yielding stocks of the S&P 500. Critics say the screens here are flush with features but are not very sophisticated. Another drawback: You have to download Windows-only software.
Want to emulate the stock-picking prowess of the famous investors? Several newer sites promise to approximate the styles of money gurus such as Peter Lynch or William O’Neil. Go to Validea.com, and look for the “Guru Stock Screener” under “Guru Analysis.” One screen targets stocks that would have a strong interest from four or more gurus.
True stock junkies favor the screens at Wall Street City (www.wallstreetcity.com), because they are sophisticated and infinitely customizable. Check out the free basic screener before signing on for the $9.95 Pro package, where you’ll find the most advanced tools.
The screening tools on Chicago-based Zacks (www.zacks.com) focus on the site’s specialty and strength: earnings estimates. These screeners will root out stocks that had, for example, the best change in average broker recommendation in the past week, or the largest percentage change in quarterly earnings estimates in the past four weeks. Screeners aren’t just for stocks. WorldlyInvestor.com lets you screen for ADRs (American Depositary Receipts), and screens for stock options and covered calls can be found at OptionFind.com (registration is required but it’s free).
You can also screen for mutual funds at several sites, such as the Nasdaq site (www.nasdaq.com), Morningstar, WorldlyInvestor.com, Yahoo!Finance (finance.yahoo.com), MaxFunds.com, FinancialWeb.com, and others. For a fairly complete list of links to Web-based screeners, go to Superstar Investor (www.superstarinvestor.com) and click on “Screening Tools and Calculators.”
All screeners are not created equal, cautions Gerstein “The biggest flaw among most screeners is that they focus on raw numbers, not relationships,” he says. “I would never sort by an EPS [earnings per share] below this or above that. I want to sort on the relationship between EPS and something else. “
Another caveat: Don’t look for the moon. Sure, we’d all like a stock whose profits have gone up 100 percent in the past couple of quarters, but how likely is the company to repeat that performance? Be realistic, and you’ll get better results.
Make sure the site allows you to save your screens if you’re going to design your own and plan to use them frequently. MoneyCentral, MarketGuide and Silicon Investor (www.siliconinvestor.com; find the screener under “Research”) allow for saves.
And remember that some screeners are no more than sorters.
Say you are looking for companies with high growth rates, 30 percent or better. The trouble is, you’ll get all the companies that meet this criteria, including companies that have been in the tank and have suddenly (perhaps by result of some aberration) pulled out.
“If you do a value sort, you’re always going to find at the top of the list values that are cheap because they deserve to be,” Gerstein points out.
Because screeners by their nature look backward, screeners can miss some big events. Make sure you check out the latest news on a stock you’re considering.
Screeners should be your first step, but not your last. “It’s an idea generator, not the final answer,” Gerstein says.
