From picking a car to picking a cardiologist, technology is making the narrowing-down process easier in the 2020s. What about the universe of stocks, though? Can a stock screener help investors winnow stocks down to the best and cast out the rest?
The answer is yes they can. Fresh stock picks could be just a few clicks or taps away, and today’s tech-enhanced screening tools can bring you some big winners if you know how to use them effectively.
What Is a Stock Screener, Anyway?
Let’s start with the basics: What’s a stock screener, anyway? Think of a stock screener as a really smart dog that can fetch whatever you instruct it to. Or imagine a robot that you can program to pick a really specific food item from a very large menu.
If you’re starting to get the idea that a stock screener is really good at retrieving practically whatever you’re looking for in the world of stocks, then you’re on the right track.
☝️ Remember, though, that even the smartest robot can only get you what you want if you give it the right instructions.
A stock screener instantly scans through the universe of thousands of stocks and serves up the ones that you’re looking for, but only based on the criteria that you provide. The more specific you are in providing those criteria, the more tailored the results will be, though there will probably also be fewer results.
Here’s an example of a popular stock screener from a website/app called Finviz. As you can see, it has a number of filters to help you narrow down the types of stocks you’re interested in.
Check out our in-depth Finviz review for more details.
With the Finviz screener, you can change the output by using the tabs to alter the inputs. For example, you can use the Descriptive tab to narrow your list of stocks down to mega-caps, stocks only on the NASDAQ exchange, or stocks in the energy sector. You can even combine some or all of these filters, along with many more.
The Finviz screener also has a Fundamentals tab, where you can further narrow down your stocks list based on well-known value-investing metrics like P/E ratio and PEG ratio.
Then, feel free to move over to the technical tab, where chart watchers might be interested in seeking out stocks based on moving averages, the Relative Strength Index (RSI), and so on.
Here’s an example of a search for mega-cap NASDAQ-listed stocks with a P/E ratio below 20. At the time, there were only two stocks that meet all of those criteria: Alphabet and Meta Platforms. I could have relaxed my criteria in order to get more results – for example, by changing the P/E ratio filter to “Under 30” instead of “Under 20.” Whichever stock screener you choose, make sure that it has a wide variety of filters to choose from so you can get the most tailored results possible.
☝️ Remember that to use these indicators effectively you will need to understand each indicator that you use and its strengths and weaknesses.
Why Use a Stock Screener?
Stock selection is already challenging for individual investors. There’s a good reason why some folks stick to mutual funds and ETFs: You don’t have to figure out how to select the best stocks if you can just buy a whole basket of them all at once.
It’s still possible to own some funds while also holding a few carefully selected stocks, and that’s where a screener can be your best friend if you know what features you are looking for. There’s no need to wade through a sea of thousands of stocks when stock screeners can do the legwork on your behalf.
For example, let’s say on the lookout for very large businesses in which the company’s insiders have some skin in the game. You could try to be a sleuth and conduct your own due diligence, assuming you have the free time and the resources to do so. Or, you can get the results you’re looking for in a matter of seconds by using a screener like Finviz.
Here are the results when I requested mega-caps with insider ownership of 10% or greater:
The results were Berkshire Hathaway, Eli Lilly, Mastercard, and Tesla. Honestly, I had no idea that those four companies had 10%-or-greater insider investments at that time. I learned something new, and you’ll surely learn a thing or two when you try out a stock screener.
That’s what a really good screener does: It allows you to explore very specific swaths of the stock universe, based on your requirements. A stock screener will also force you to really think about what you’re looking for in a company, and that’s a good thing because this can make you a more focused investor.
With a screener, you can be as picky as you’d like. That’s not a bad thing at all, as you don’t want to focus on just any company; you should be fussy and insist on the best that the financial markets have to offer.
This principle has limits, though. If you’re too selective and apply too many filters all at once, you might get no results at all. In that case, consider easing up on your criteria. At the same time, never compromise your core values as your portfolio’s well-being depends on them.
Screen Carefully, but Enjoy the Ride
Stock selection is serious business, but don’t be afraid to have fun with screeners. As long as you’re just looking, feel free to let yourself explore areas of the markets you’re not already familiar with. You may not choose to buy the stocks, but experimenting with screens can introduce you to market sectors you hadn’t considered.
Maybe you can add some electricity to your portfolio by filtering for utility stocks, or perhaps you’d like to discover companies that had their initial public offering (IPO) within the past year. With stock screeners, you can do these things quickly and easily.
So, who can benefit from a stock screener? The answer is anyone who’d like to save a whole lot of time and trouble when filtering for stocks that meet their specific requirements. Just be sure to screen for a great screener: some might meet your needs better than others. Start with our review of 15 of the best stock screeners.
Using the best screener for your needs is a start, but it’s not enough. You’ll need to understand the screening criteria and put real thought into choosing the criteria you use for your screens. You’ll also have to recognize that the screening process does not include critical information on the business sector and the competitive environment that companies face.
A stock screener is a valuable tool, but it doesn’t substitute for good judgment, thorough research, and a healthy appreciation for risk. Always consider consulting an investment professional before making critical financial decisions. After all, nobody has invented a screener that will reliably search for stocks that are going to rise in the future!