For investors at all levels, a stock screener is like a GPS. You can still find your way through all the options out there; however, now you can pinpoint your exact location and distance from your destinations with much greater accuracy. The Stock Screener is one of many tools available to help investors filter and sort through the universe of stocks and make better-informed investment decisions.

What is a Stock Screener and Why It Matters

The Stock Screener is a set of tools that allows you to filter, sort, and analyze stocks based on a variety of factors, including financial performance, valuation, growth rate, risk, and more. A stock screener is a crucial component of a successful investment strategy in today’s market. Providing you with a quick way to identify stocks that fit your investment strategy allows you to focus on researching the ones that meet your investment objectives, whether they be growth stocks, income stocks, or any other investment style.

Selecting the Best Stock Screener 

There is a big difference between stock screeners. When selecting a stock screener, think about the criteria you value the most based on your investment approach:

Flexibility of criteria: Does the screener allow investors to customize the criteria they consider most important, such as business profit, company debt, and business momentum, as well as analyst ratings? 

Real-time versus delayed data: Investors with a very active investment strategy typically prefer real-time data, while long-term investors may be satisfied with delayed data.

Usability: The better the screener’s usability (e.g., an intuitive, easy-to-navigate interface), the less likely it is to slow down your investment process. 

Integration with research: A stock screener would allow direct access to the research that you have completed on the stock that you have screened. 

The investment screening process is not a standard model for everyone; bottom-up investors generally focus on a stock’s fundamentals and therefore typically prefer to screen by company rather than by ETF. 

The Use of a Stock Screener – A Step-by-Step Process

To maximize your use of stock screeners, follow the step-by-step guidelines below:

Define Your Objective

Decide the type of investment you want to pursue. Are you seeking stocks that are “Quality and Value” types, “Dividend Growers”, or “Growth Companies”? Your objective will determine the filtering criteria that you create.

Create Exclusion Criteria

Begin with your Exclusion criteria. The Exclusion criteria will help you eliminate “the noise” from your stock screener results. For example, if you prefer a more stable investment, you may want to eliminate Micro Cap Companies from your search results. Likewise, if you prefer to invest in volatility, you should eliminate High Beta stocks from your search results. 

Add Quality Metrics

You can assess a stock’s quality using Metrics such as Net Profit Margin, Return on Equity (ROE), and Financial Leverage (e.g., debt-to-equity ratio). On many stock screening websites, you can set your Quality metric parameters, i.e., ROE >= 30% or DEBT/EQUITY < 1. 

Include Value Filters

Value Filters are used to prevent overpaying for a stock. For instance, you can filter stocks by Valuation Multiples, like the P/E ratio. A common strategy is to identify stocks with a forward P/E ratio below a specific threshold relative to the market average. 

Optional Fine-Tune Additional Criteria

You may want to filter by analyst recommendation (e.g., “Buy or Better”) or by technical momentum using short-term moving averages above longer-term moving averages. 

Value Screening and Review Results

Once you have set up your Filter set(s), run your screen to see how many stocks meet your criteria with your Filter set(s).

Do Further Analysis

The screening results list is only an initial step in the search for stocks. Use the screening results list to identify stocks you may wish to conduct deeper qualitative analyses on, such as reading financial statements, analyzing for competitive advantage, and assessing future risk. Save Your Screening Filters For Future Use. 

Many screening tools allow you to “save” your screening Filters and set this as a “screen”. Be sure to do this, and revisit your saved screen regularly while checking how your saved screening Filters evolve with the latest market data.

Using Various Screening Strategies To Meet Your Investing Goals

These are some example screening strategies based on your investment goals:

Strategy Based on High Quality + Low Price (RT Wrong)

An investor seeking to identify fundamentally strong companies trading at very low prices may want to combine quality metrics (such as a high ROE and low leverage) with value metrics (such as a low forward P/E ratio) to achieve this.

The Dividend-Growth Method

 Find companies that have increased their dividends regularly, have a consistent or decreasing payout ratio bell curve, and produce ample free cash flow; thus fulfilling the concept of sustainable investment.

Growth & Momentum

 Seek companies that post significant improvements in EPS, receive positive opinions from Analysts, and are trending up in share price moving averages; this is a more tactical approach, allowing investors to seize growth momentum.

Screening Exchange-Traded Funds (ETFs)

 If you prefer macro- or theme-centered investing, the screening methodology for ETFs can be performed by: asset class, region, and/or strategy. 

Common Mistakes And How To Avoid Them

Using a stock screener is great, but it is possible to make mistakes. Below are a few common pitfalls along with ways to avoid them:

Creating An Overly Complex Screen: The more filters you use, the fewer companies you will find. Focus your screen on realistic criteria.

Having Blind Faith in Screening Metrics: A low valuation ratio does not necessarily mean a good price. Always perform a qualitative review of your screened results.

Failing to Consider the Broader Context: Changes in macroeconomic conditions, shifts in the industry, or news specific to the company can have catastrophic effects on what you perceive as a good company; use caution with your screening.

Screening Screens: Your filters should continue to evolve. You should periodically evaluate and update your filter criteria as your thesis or market conditions may change. 

Putting it All Together with Action

Now that you have developed a filter and have compiled a short list of stocks

Create a Watchlist – Place all companies from the filter into a watchlist/portfolio for continuous monitoring.

Conduct Fundamental Analysis – Perform a thorough review of financial statements, presentations, and valuation methods. Examples of potential tools are discounted cash flow (DCF) or dividend discount models. 

Determine How Much to Invest – After completing your analysis, determine how much capital you are willing to apply to each company in the watch list. 

Set Alerts/Re-screen Regularly – Markets change frequently; therefore, it is wise to review your filter criteria periodically.

Using Screens as part of Investing

Incorporating a stock screener into your investing toolbox is an efficient way to execute your screening. For instance, using TradingView’s screeners lets you apply the same filter criteria you have used in the past to find new opportunities while simultaneously tracking historical performance on the same platform.

Extra Ideas to Consider

Using multiple sources of information across different platforms to screen for stocks is a good practice. Often, multiple platforms display different types of metrics that should not be relied upon alone.

The combination of your fundamental filters and your technical trend filters can reveal companies you may not find with either filter alone.

As you begin to search for and build your investment portfolio, you can join an investment-related community (either in person or online) to obtain the benefit of other investors’ experiences, which allows you to both share your screening process and criteria and to learn from other investors’ screening techniques.

To Summarize 

Ultimately, utilizing your stock screener is more than “clicking and filtering.” When you utilize a stock screener, you must define a clear plan and establish meaningful criteria for what type of stock you want to buy (or sell) and how you will evaluate the results from your screening process. You should develop a systematic way to find stocks that fit either a value investing, dividend growth investing, or a momentum investing strategy.