How to Create an Online Stock Screen - dummies

By Matt Krantz

Online investors often use stock-screening sites to make decisions about their investments. Many stock-screening sites exist, and they all work slightly differently, but once you choose a stock screening site, you can customize it to have it gather the information that you need most. The general procedure of getting into the screening game is essentially the same:

  1. Choose a screening site.

    Several of the Web sites provide free or low-cost screening tools.

  2. Decide what kind of stock you’re looking for.

    Perhaps you’re trying to find a stock that fits your asset allocation. Are you looking for a company that’s being ignored by other investors and should therefore be considered value-priced? Are you trying to find a fast-growing company that will blow away earnings forecasts? Are you looking for a stable stock that pays a large dividend? You can find all these types of stocks by using screens.

  3. Pick measurable traits shared by stocks and companies you’re looking for.

    You can pick your own general traits or use premade screens where professionals have already created the search criteria so that you don’t have to spend your time doing it.

  4. Refine your screen.

    Screening for stocks is a bit of a trial-and-error process. At first, the list of companies that meet your standards might be too large. You can make the criteria more stringent or add additional criteria to help narrow the list even more.

Now that you understand how the screening process works, the fun part begins. The best screens are carefully designed to pinpoint stocks that have the traits you’re looking for. When building screens, it’s best to be as specific as possible so that you find stocks that are the perfect matches for your portfolio.

The number of characteristics you can use to screen stocks is virtually unlimited. If you can measure it, you can screen stocks for it. Even so, most investors use the following primary measures in screens:

  • Company information: Common criteria you might use would include the number of employees, the stock market exchange the stock trades on, the industry the company is in, and what stock market index the company is part of. How much money the company brings in is also important.

    If you’re looking for a job and want to find companies in your area, stock screens can be useful. Many stock-screening sites let you search for companies in certain states, and some let you search for companies in cities.

  • Trading characteristics: You can search for stocks that tend to swing more or less than the general stock market, stocks that are close to their high or low during the past year, and stocks that trade hands between investors more often or less often. You can also find companies that investors are betting against by shorting the stock.

    Market value: This measures how much the company is worth. Market value is used to determine whether a company is small, mid-sized, or large.

  • Profitability: Not surprisingly, you can search on both earnings and cash flow. You can drill down even further by looking for specific things about profits, including how quickly profit has grown over the most recent quarter, year, or over the longer term.

  • Analyst ratings: Analysts often evaluate stocks and rate them as a buy, hold, or sell. You can set up your screen so that it finds stocks with a certain rating.

  • Valuation ratios: Investors pay close attention to how much they’re paying for companies.

  • Dividends: These periodic cash payments made by companies to shareholders are important because they account for about a third of many large companies’ total return. Dividends are also widely watched because they’re an indication of a stock’s valuation.