The Basics of Stock Screening Tools - dummies

By Paul Mladjenovic

After you familiarize yourself with the components and practicality of stock screening tools, you’ll be hooked and you’ll wish that you had used them sooner. Keep reading for a breakdown of the essentials.

Choosing the category

The first thing you typically see with a stock screening tool is the category. Actually, this means the industry. Many screeners (such as the one at Yahoo! Finance) go into sub-categories. If you’re looking for a transportation company, for example, you may get “transportation-trucking,” “transportation-rail,” and “transportation-shipping.”

Distinguishing “min” versus “max”

Min and max are the yin and yang of the stock screening world. When you set your parameters for stocks, you need to set a minimum and a maximum. If, for example, you’re looking for a “profitable stock,” that means you need to set a parameter of minimum profit and maximum profit. The stock investor takes the long view and stays patient and focused for successful value investing.

Keep in mind that some stock screeners use a different approach, such as “less than” and “greater than,” but it essentially serves the same purpose for your searches.

Setting value ranges

In some cases, you may need to choose a range. Perhaps you’re looking for stocks in a particular price range. A stock screening tool may provide choices such as 0–10, 10–20, 20–30, 30–40, 40–50, and over 50. Another typical range you may see is market capitalization (the total market value of the company’s stock) or dividend yields (the dividend amount divided by the stock price).

Searching regardless of your entry

Most screening tools allow you to do a search whether you enter one value or parameter or many. If you choose to search for a stock in all categories and enter only, say, a dividend yield with a minimum value of 2 and a maximum value of 999 and no other entries, then you’ll get hundreds of stocks.

However, if you input plenty of parameters, then you’ll get very few stocks (or none at all). If you ask for stocks with features A, B, C, D, and E, then you won’t get as many results. Be selective — that’s the whole point of using stock screeners — but don’t go overboard trying to find the perfect stock because it may not exist.

Getting close to perfection is probably good enough, but the more important point is to avoid the bad choices such as companies that have too little income, have net losses, or carry too much debt.