If recent stock market declines have you shopping for bargains, you may want to use an Internet-based screening tool to find them.
These screeners use up-to-the-minute data to find stocks that fit your criteria and sell at attractive prices. For example, they can point out companies with solid profits, low prices and good dividends. Or those whose shares have dropped sharply despite booming sales.
But before you screen for your next stocks, you'll have to choose which program to use.
Recently the American Association of Individual Investors reviewed more than more than a dozen online screening sites and offered some pointers about how to choose one.
Whether you use the Reuters site or others (the AAII also gave top grades to screeners from Morningstar (http://www.morningstar.com/ under Stocks) and MSN (http://moneycentral.msn.com/investor/ under Stocks), you should try to find the one that best matches the way you shop for stocks.
Here are some pointers to help you screen for screens - and make better use of the ones you choose:
- Try a few. Many are free, or offer scaled-down versions for free, so there's no reason to limit yourself to one Web site. Try the top-ranked and also look at MarketScreen (http://www.marketscreen.com) and Yahoo (http://finance.yahoo.com). Most online brokers also offer their own screening programs.
- Prepare to trade ease of use, and money, for complexity of features. You may not need the intraday volume-based screening that a technical analyst might use, or the 100+ data fields for screening that many of the services offer. You'll probably keep going back to the screener that is simplest for you to use. Several sites also offer premium screeners that are more full-featured than their stripped-down versions. Depending on the criteria you use, you may find the free versions adequate.
- Get the criteria you really want. Several sites don't let you compare a company's statistics to its industry average, although that's a measure many investors like. Some screeners focus more on valuation criteria, like price/earnings ratios and the like. Others highlight technical criteria, like daily high/low prices. Figure out how you pick stocks, and then find the screens that will pick them for you.
- Try the prepackaged versions. Most of the sites offer their own screens, with names like high-yield companies or aggressive growth stocks. Some, like Value Line (http://www.valueline.com), made their name screening for stocks and charge for screens that use their methodology. Validea (http://www.validea.com), another fee-based service, creates screens that mimic star investment managers or well-known Wall Street winners, and then lets you use them to put your portfolio together.
- Go for benchmarks and comparisons. Look for screening programs that let you compare companies within an industry, or even companies against their own historic rates. A price/earnings ratio of 12 may seem cheap, for example, but not when the historical average for the company is 10.
- Click and save. Some sites will let you save results or print them out. Others only let you use them as long as they are up on your computer monitor. Close the window, and they're gone forever.
- Go to the source. If you're an individual investor serious about stock screening, you might want to join AAII, which offers its own screens and screening site comparisons to members at http://www.aaii.com.
- Confirm and validate. If one company pops up on top of your screen, research it further. There may have been a mistake in the database you are searching, or it could be at the top of the screen because something really weird is going on at the company. What do other Web sites say? Delve deeper into the company's story before you buy the stock.
- Screen what you already own. If you like to buy companies that have fast-growing earnings, solid cash flow and no debt, that's one thing. But shouldn't you then sell those that lose their way, pile up debt and stop selling their products as well as they had been? Check the stocks you already own to see if they would pass your screens. If not, consider selling them.