For a novice investor trying to figure out his or her first investment strategy or even a seasoned investor looking for a new approach in picking stocks, preset or predefined stock screeners can offer an easy and fast way to filter through thousands of stock choices.
Every Investor's Goal: Picking the Right Stocks
One indelible investment lesson from the Great Recession is the need to find the right stocks at the right time. During bearish times, investors want to hide out in the safety of defensive stocks while riding out the storm from the economic downturn. As the pendulum swings to a bull market, investor exuberance explodes and there is scramble for high growth stocks to outperform the market. For a novice investor, learning the alphabet soup of investing terminology (EPS, P/E, PEG, ROE) can be a daunting enough task without having to select the ranges for these parameters in a customized stock screener. Preset stock screeners can take the guess work out of the equation and enable investors to choose an appropriate investment strategy while letting the pros fill in the particulars.
Basic Stock Screeners
Many established financial websites, including CNBC, MSN Money, NASDAQ, Yahoo, and Zacks, offer free basic preset or predefined stock screeners to visitors of their websites without requiring them to register. The most common preset screeners focus on finding:
Value Plays sporting lower price to earnings (P/E) or price to sales (P/S) ratios.
Growth Stocks predicted for high percentage growth in revenue or sales for the current year or over the next five years.
Dogs paying out the highest dividends in a stock index which is a sign of the stock's under-appreciation. The classic dog belongs to the Dow 30, but new stock screeners will locate dogs in the S&P.
Contrarians suffering from out of favor status with strong balance sheets and lower price to earnings than their peers.
Momentum Climbers reaching their 52-week highs or seeing large price percentage gains from the previous day's close.
Stock Screeners with a Twist
Several of the free financial websites expand on the basic investment strategies to bring more choices for investors.
Yahoo Finance offers a couple of screeners geared to find companies poised to give investors an extra boost to their returns.
- Strong Forecasted Growth leads investors towards companies with earnings growth estimates for this year of at least 50% and for the next five years of at least 30%.
- Large, Growing, and Cheap returns results with market capitalization greater than or equal to $5 billion, earnings growth estimates of 20 or more percent for this year, price to earnings ratios less than or equal to 20, and price to sales ratios less than or equal to 1.3
CNBC offers a mixture of strategies for locating bargain and "best of breed" companies respectively with:
- Dogs of the S&P digging up companies with dividends greater than 3% with a market cap greater than 10,000 million.
- Solid Stocks Solid Companies highligting companies belonging to the S&P with dividends yielding greater than or equal to 2%, market caps greater than $10,000 million, price to earnings greater than or equal to 30, and return on equity greater than or equal to 15.
MSN Money hosts over 30 technical and fundamental stock screeners on their website. Some of their unique gems include:
- Righteous Rockets which selects "companies that appear undervalued, are profitable and have relatively low debt -- making them 'righteous' -- but that are also fast growing and have begun to see significant stock price appreciation -- making them 'rockets.'"
- Institutional Ownership Up Last Month which includes stocks whose ownership by professional investors has increased based on SEC filings made in the past month. The list filters out micro cap stocks and those trading below $3.
NASDAQ matches investors with an investment strategy based upon some of th best-known investors, including David Dreman, Kenneth Fisher, and Martin Zweig among others as presented in the book:The Guru Investor by John P. Reese and Jack M. Forehand. The Guru stock screener returns a list of stocks based upon the level of interest (strong or some or strong) indicated by the user for one or more of the guru investment styles.
The Big Money features an SRI (socially responsible investing) screener which ranks 500 major American public companies on criteria supportive of green, labor and human rights, non-military, no vice, or gays and lesbians.
Use Stock Screeners With Caution
Stock screeners are another tool in an investor's treasure trove to help narrow the field of stocks, but these filters can't replace an investor's full scrutiny before making an investment. If you rely too much on a preset stock screener, you may find your stocks in MSN Money's stock screener for This Year's Losers instead of where you should be in This Year's Winners.