Stock Screeners - How to choose the best ?

• Field Name or Variable
• Operator or Condition
• Value
  

• Other functionalities
• Stock Screener Conclusions

Field Name or Variable Go back to Top

• Value Investing
  
  Value Investing and Growth At Reasonable Price do not require many criteria and you’ll do well with most screeners, even simple ones with few variables.
  
  
  
• Growth Investing
  
  Growth Investing (a la Warren Buffett) requires more stringent rules. Many screeners, especially free ones, lack the required variables such as comprehensive historical data.
  
  Morningstar Premium Stock Screener and the National Association of Investors Corporation's Stock Prospector  offer up to 10 years historical data.
  
  Free Stock Screeners offer fewer variables. Among them, MSN Deluxe Stock Screener provides a large number of variables. Yahoo Stock Screener provides a large number variables suitable if you're a Day Trader but fewer if you're an Investor.
  
  
  
• Momentum Investing
  
  If you’re a Momentum Investor, your screener must include the Relative Strength Rank and either the Earning Per Share Rank, an Earnings Estimate Revision or a Positive Earnings Surprise parameter.
  
  Although most screeners provide the Relative Strength Rank, few provide the Earning Per Share Rank: a cheap screener that provides it is the Pitbull Investor StockTables screener.
  
  
  
  
• Stock Ratings
  
  Stock Ratings are useful variables and you may want to use them in your screening strategies. They are indeed well adapted to mechanical stock picking.
  
  Here, the free MSN Deluxe Screener and the cheap Morningstar Premium screener are worth consideration for their MSN Stock Scouter Ratings and Morningstar Ratings.
  
  Value Line and its proprietary Value Line Timeliness (Click here to sign up for Value Line Investment Survey's 13-week Trial) as well as Zacks with its Zacks Rank are more expensive and should be considered only if you have a large portfolio (>100.000$).
  
  
  
• User-Defined Variable
  
  Some screeners, including the free MSN Deluxe Screener, offer a great possibility: they allow you to build your own variable with the other available ones.
  
  Example: You may build a variable computing a modified Price Earning Growth: the PEGD that takes into account Dividend Yield in the denominator so as not to penalize companies with high dividends when screening with the PEG.
  
  

Operator or Condition Go back to Top

• OR Operator
  
  
  • Most screeners use an AND approach: in order to pass the screen, a stock has to satisfy ALL criteria.
    
    
  • Some screeners also offer an OR operator which provides more flexibility.
    
    In this case, you can build a screen where a stock has to pass criteria 1 OR criteria 2.
    
    Example: Price/Earnings PE cannot be used for companies without earnings, Price/Sales PS would be better. Therefore, a Value Investor may want to screen for stocks using an OR criteria as follows:
    
    
    PE < Industry Average PE
    OR
    PS < Industry Average PS
  
  
  Morningstar Premium Screener, NAIC's Stock Prospector allow the use of OR operator. In this case AND and OR operators can be mixed in a screen.
  
  
  
  
• Other operators
  
  
  • SmartMoney Select includes 2 special operators: “Top% in” and “Bottom % in”. You then select a field among: Sector, Industry, S&P500, DJIA, Nasdaq or All.
    
    It provides the greatest flexibility for screening against Industry or Market Averages and eliminate the risk of sector concentration.
    
    
    
    
    Note: NAIC's Stock Prospector also allows very flexible screening against Industry Average values.
    
    If your screener allows the use of "Variables" and "Formula" in the Value field (see below), then you can perform similar operations.
    
    
    
  • MSN Deluxe Screener includes 2 special operators: “High as possible” and “Low as possible”.
    
    This allows Relative Screening rather than Absolute Screening.
    
    Most operators are absolute: PE < 20 will filter out any company with PE greater than 20. The number of stocks passing such screen will vary according to the Market’s Valuation.
    
    But PE “Low as possible” will always give you the same number of stocks - which you specify - whatever the Market’s valuation.
    
    These 2 operators can also be used in Ranking.

Value field Go back to Top

• Numerical Value: PE < 20
  Basic screeners will only offer the Numerical Value field. This is the case of Yahoo Finance Screener.
  
  
• Variable: PE < “5 years Average PE”
  MSN Deluxe screener, Morningstar allow to use any of the available Variables in the Value field.
  
  
• Formula: PE < 0.8*”5 years Average PE”
  MSN Deluxe Screener allow to build complex formulas. Complex formulas include a mix of user-defined Variables, numerical values and operators.

Other functionalities Go back to Top

• Predefined Screens: here, it is not only the availability of Predefined screens that is important but also their Quality.
  
  The Quality of Predefined screens basically depends on the screener's capabilities. For instance, Yahoo Finance Predefined Screens only use Numerical Value in the Value field which can be limiting for many.
  
  
• Ranking: Ranking is the process of sorting stocks passing through a screen according to one or several criteria with possible weights assigned to each criterion.
  
  You rank stocks in order to select and buy the Top ones only. Morningstar Premium and Free Screener as well as NAIC's Stock Prospector allow powerful Ranking with possible weights assigned to important criteria.
  
  
• Import/Export capabilities
  
  
  • Most screeners allow Export of the results to a spreadsheet. A noticeable exception is Morningstar Premium Screener. Exporting can be useful if you want to perform your own Ranking or compute some Statistics on your screen's results.
    
    
  • Reuters Power Screener is the only free stock screener to allow Import of your own list of stocks. (Modified June 2008: Reuters Power screener is no more. A screener that allows you to import your own list of stocks is NAIC's Stock Prospector).
    
    This can be extremely useful: you may run a screen on another screener, and then import the results into Reuters Stock Prospector for further screening.
    
    Example: Reuters Stock Prospector lacks historical financial data while Morningstar Premium Screener does provide extensive ones.
    
    A cheap solution for Long Term Growth Investors could be to:
    
    
    - subscribe to Morningstar Premium Screener for just one month at 16.95$.
    
    - run a screen highlighting companies with excellent 10 years Growth track record for both Sales and Earnings.
    
    The companies won’t change so often so you don’t need to run such screen very often: at most once a year.
    
    Now, these companies are best bought when they are cheap so you may want to run a regular check (e.g. quarterly) to verify whether valuations are affordable.
    
    This can be done with Reuters Stock Prospector using the Morningstar screener’s results as input.
    
    You may find many other applications to the Import capability of Reuters Stock Prospector.

Conclusion on Stock Screeners Go back to Top