A typical stock screening tool.
Keep in mind that with the minimums and maximums in the following sections, there will be variations. Also, some market analysts and financial advisors are more or less lenient than I am with these numbers. Don’t sweat it. Do your research and come up with similar numbers that you’re comfortable with.
Before you begin: Select your screenerAt the Yahoo! Finance stock screener page, you see the following links at the top:
- Saved screeners: When you design your own screeners, you can save them for future use. This option will come in handy as you become experienced and proficient with screeners.
- Equity screener: This option is for finding and analyzing stocks. I work with this particular screener in the upcoming sections.
- Mutual fund and ETF screeners: When you’re looking for the right mutual fund or ETF, these screeners will help.
- Future and index screeners: These categories are more for the speculators and traders in the world of futures and indexes.
First up: The major categoriesAfter you choose the equity (stock) screener in Yahoo! Finance, you have to address a few major categories first before you get to the “guts” of screening stock data (refer to the figure):
- Region: Here you enter data about your chosen country to refine your search. If you’re looking for U.S. stocks, the choice of course is “United States.” In the menu, you see countries with public stock exchanges ranging from Argentina to Vietnam.
- Market cap: In the Market Cap (Intraday) category, you can designate the criteria for your search based on market capitalization and choose Small Cap, Mid Cap, Large Cap, or Mega Cap.
Looking for growth potential? Go for small cap or mid cap. Looking for more safety? Go to large cap or mega cap.
- Price: In the Price (Intraday) field, enter criteria based on share price, such as “greater than” or “less than” your chosen price. There are also options for “equals” and “between.”
- Sector and industry: A sector is a group of interrelated industries. For example, the healthcare sector has varied industries such as hospitals, medical device manufacturers, pharmaceuticals, drug retailers, and so on. Choosing an industry rather than a sector narrows your choices.
The main event: Specific filtersAfter you make choices in the major categories covered in the preceding section, you drill down to find stocks that meet your standards with various filters. I don’t cover all the metrics here since there are literally too many to cover, but in the following sections, I briefly touch on the most relevant subcategories and then you can dive in. (To get to these filters in the Yahoo! Finance screener, just click Add Another Filter, as shown.)
Share statisticsIn the Share Statistics menu in the Yahoo! Finance screener, you find over 40 stock-related criteria ranging from share price action (the 52-week high or low) to fundamentals such as total assets or total liabilities. One area I like to focus on is the price-to-earnings (P/E) ratio. This ratio is one of the most widely followed ratios, and I consider it the most important valuation ratio (it can be considered a profitability ratio as well). It ties a company’s current stock price to the company’s net earnings. The net earnings are the heart and soul of the company, so always check this ratio.
All things being considered, I generally prefer low ratios (under 15 is good, and under 25 is acceptable). If I’m considering a growth stock, I definitely want a ratio under 40 (unless there are extenuating circumstances that I like and that aren’t reflected in the P/E ratio).
Generally, beginning investors should stay away from stocks that have P/Es higher than 40, and definitely stay away if the P/E is in triple digits (or higher), because that’s too pricey. Pricey P/Es can be hazardous, as those stocks have high expectations and are very vulnerable to a sharp correction. In addition, definitely stay away from stocks that either have no P/E ratio or show a negative P/E. In these instances, it’s a stock where the company is losing money (net losses). Buying stock in a company that’s losing money is not investing — it’s speculating.
Make sure your search parameters have a minimum P/E of, say, 1 and a maximum of between 15 (for large cap, stable, dividend-paying stocks) and 40 (for growth stocks) so that you have some measure of safety (or sanity!).If you want to speculate and find stocks to go short on (or buy put options on), two approaches apply:
- You can put in a minimum P/E of, say, 100 and an unlimited maximum (or 9,999 if a number is needed) to get very pricey stocks that are vulnerable to a correction.
- A second approach is putting in a maximum P/E of 0, which would indicate that you’re searching for companies with losses (earnings under zero).
IncomeIn the Income menu in the Yahoo! Finance screener, there are some important metrics tied to sales and profits. Keep in mind that that income in terms of sales and profits are among your most important screening criteria.
For sales revenue (called Total Revenue in the Yahoo! Finance tool), there may be absolute numbers or percentages. In some stock screeners, there may be ranges such as “under $1 million in sales” up to “over $1 billion in sales.” On a percentage basis, some stock screeners may have a minimum and a maximum. An example of this is if you wanted companies that increased their sales by at least 10 percent. You’d enter 10 in the minimum percentage and either leave the maximum blank or plug in a high number such as 999. Another twist is that you may find a stock screener that shows sales revenue with an average percentage over three or five years so you can see more consistency over an extended period.
Profit margin (called Net Income Margin % in the Yahoo! Finance tool) is basically what percent of sales is the company’s net profit. If a company has $1 million in sales and $200,000 in net profit, the profit margin is 20 percent ($200,000 divided by $1,000,000). For this metric, you’d enter a minimum of 20 percent and a maximum of 100 percent because that’s the highest possible (but improbable) profit margin you can reach.
Keep in mind that the data you can sift through isn’t just for the most recent year; some stock screeners give you a summary of three years or longer, such as what a company’s profit margin has been over a three-year period, so you can get a better view of the company’s consistent profitability. The only thing better than a solid profit in the current year is a solid profit year after year (three consecutive years or more).
Valuation measuresFor value investors (who embrace fundamental analysis), the following parameters are important to help home in on the right values (check out Appendix B for more details on ratios):
- Price-to-sales ratio: A price-to-sales (PSR) ratio close to 1 is positive. When market capitalization greatly exceeds the sales number, then the stock leans to the pricey side. In the stock screener’s PSR field, consider entering a minimum of 0, or leave it blank. A good maximum value is 3.
- PEG ratio: You obtain the PEG ratio (price/earnings to growth) when you divide the stock’s P/E ratio by its year-over-year earnings growth rate. Typically, the lower the PEG, the better the value of the stock. A PEG ratio over 1 suggests that the stock is overvalued, and a ratio under 1 is considered undervalued. Therefore, when you use the PEG ratio in a stock screening tool, leave the minimum blank (or 0), and use a maximum of 1.
- Other valuation ratios: Some stock screeners may include other ratios. A good one is the average five-year ROI (return on investment), which gives you a good idea of the stock’s long-term financial strength. Others may have an average three-year ROI.
Because this is an average (in percentage terms) over five years, do a search for a minimum of 10 percent and an unlimited maximum (or just plug in 999 percent). If you do get one that’s anywhere near 999 percent, by the way, call me and let me know!
Dividends and splitsFor income-minded folks, go to the Dividends and Splits menu in the Yahoo! Finance screener to enter criteria such as Dividend Per Share (DPS) and Dividend Yield %.
ESG scoresFor many investors in recent years, nonfinancial and nonmarket aspects of corporate governance have gained greater importance. In the category of ESG Scores (environmental, social and governance criteria) in the Yahoo! Finance screener, you can enter aspects of corporate behavior that you seek (or want to avoid) in the public company that you’re considering for investment.
Screening stocks with technical analysisMany stock screeners have the ability to use technical analysis by using technical indicators. Technical analysis is more important for those with a short-term focus, such as stock traders and short-term speculators. Here are some common technical indicators:
- Moving averages: Looking for stocks that are trading above their 50-day moving average or have fallen below it? How about the 200-day moving average, which can be a more reliable indicator of the stock’s near-term strength (or weakness)?
- Relative Strength Index: The RSI is one of my favorite technical indicators. It basically tracks a stock in terms of being overbought or oversold in the near term. If a stock has an RSI of over 70, it’s overbought, and the stock is vulnerable to declining in the near future. A stock with an RSI under 30 is considered oversold, and that’s potentially an opportunity for the stock to rally in the near term.
Don’t use the RSI to determine what to buy, but certainly consider it as a way to time a purchase (or sale). In other words, if you’re attracted to a stock and want to buy, consider getting it in the event that it’s oversold. That gives you the chance to get a stock you want at a favorable price.
When you do your search and you’re using the RSI as one of your criteria, consider using a maximum RSI of 50, which is essentially in the middle of the range, with a minimum RSI of 0. If you’re looking to speculate by going short, make sure your minimum RSI is 70 and the maximum is unlimited.Here are some popular screening tools online for technical analysis: