Panning for Gold With Screens

There are thousands of stocks out there, and it can be hard to sift through them to find the ones that are likely to perform well for you. Screens are a tool that can make the job easier — especially online screeners. Screening online involves setting some criteria that describe the kind of stocks you seek and then clicking a button to see which stocks make it through your screen. For instance, you might specify that you want to see companies in the S&P 500 that have market capitalizations of at least $10 billion, price-to-earnings (P/E) ratios of 20 or less, dividend yields of 3 percent or more and profit margins of at least 15 percent. The online screener will survey the universe of stocks and eject any that don’t meet all of your criteria. Ideally, you’ll get a manageable number of companies to research further. (There are screeners for mutual funds, too.) Screening prevents you from wasting time on companies that don’t fit your preferences and can also help you discover intriguing companies that you may not otherwise have noticed. It can also make you think more clearly about your investing style, as it forces you to test and refine your criteria. Don’t simply buy a stock based on screening results. You may have screened for four measures, but each investment has many more measures to assess and requires more research. Important qualitative considerations, which include management, brand strength and competitive position, are hard or impossible to screen for. Understand, too, that screening depends on the accuracy of the underlying data, and since accounting rules permit manipulation of earnings, revenue and other measures, some numbers used by screens can be problematic. Screening can also cause you to omit an otherwise excellent investment that misses the mark on just one of your criteria, perhaps by just a smidge. It’s smart to be flexible and play around with your settings. Give screening a try. You’ll find free screeners at sites such as finance.yahoo.com/ screener and finviz.com.