Stock Screening Tools: Category, Share Data, and Analyst Estimates
Most stock screening tools have some basic elements that are very useful in helping you narrow your search for the right stocks in your portfolio. Check out a typical stock screener from Yahoo! Finance.
Keep in mind that there will be variations with the minimums and maximums.. Some stock screening tools allow lower minimums and higher maximums than the Yahoo! tool. Also, some market analysts and financial advisors are more or less lenient with these numbers. Don’t sweat it. Do your research and come up with similar numbers that you’re comfortable with.
In this opening choice in your stock screener, choose the industry (or sector) in which you’re looking for a stock. This is important because the industry is part of what makes the stock successful. Even if you choose a mediocre stock but it’s in a strong or growing industry, you can still do well.
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 instead of a sector narrows your choices.
In this field, you enter data about the stock to refine your search.
Are you looking for an inexpensive stock that’s under $10 per share? If so, you’d enter $0 as the minimum share price and $10 as the maximum share price. At this level, you may end up with a small cap stock that may be too risky for you.
If the share price isn’t a material concern, then you’d enter $0 as the minimum share price and put a large number, such as $999, in the maximum share price field so that you’d essentially be searching all stocks without concern to share price.
Market capitalization (or market cap) is a reference to a company’s market value (calculated as share price times total shares outstanding). A small cap stock has a market cap of under $1 billion, so if you’re interested in such a stock, you’d enter a minimum capitalization of $0 and a maximum of $1 billion.
If you’re more risk-averse, then you’d set the criteria for a large cap stock and put in a minimum of, say, $10 billion.
This field is perfect for those looking for dividend income. In general, dividend-paying stocks that are referred to as income stocks tend to have a dividend yield that exceeds 3.5 percent (some say that the range is 3 to 4 percent). For the maximum entry, you’d put in an inordinately high number such as 999 percent.
If the dividend yield isn’t an issue for you (because you’re looking for growth stocks, for example), then you’d leave this blank.
Are you looking for stocks that are very volatile, or do you prefer stable, boring stocks? No matter which, it’s good to know the beta of a stock. Beta measures the volatility of a stock against a standard of the general stock market, such as the S&P 500.
The market is assigned a beta of 1.0. If a stock is twice as volatile as the general stock market, it will have a beta of 2.0. If it’s 2.5 times as volatile as the stock market, it will have a beta of 2.5, and so on. If the stock has a beta of .80 (under the market’s 1.0), then it’s 20 percent less volatile than the general stock market (you get the picture).
Therefore, if you want a feature of low volatility in your search parameters, you’d enter a minimum beta of 0 and a maximum beta of either 1.0 or a lower beta as you see fit.
If you were a speculator and you were trading options, then a high volatility feature would be important to you. You might choose a minimum beta of 2.0 and put in the maximum beta of, say, 999. Imagine if you did find a stock with a beta that high — you’d be in volatility heaven!
The Yahoo! stock screener has a category called “Analyst Estimates” just in case you want to screen stocks based on the “buy, sell, or hold” views of widely followed analysts. This can add another helpful filter to your searches.
You can check out what analysts expect in terms of earnings per share (EPS) growth for either one or five years. If you’re looking for strong earnings growth for potential investing, use a minimum of, say, 15 percent so you find companies that have strong earnings growth (put “up more than 15%” in the entry field). If you’re bearish and looking to go short companies with falling earnings, put in a negative such as “down more than 10%.”
For average analyst recommendations, you can put in a range of 1 to 5, where 1 is a strong buy rating and 5 is a strong sell rating. This way, you can use analyst views to further filter the results you’re looking for in order to make more confident buy or sell decisions.