Stock Screening Made Simple: Use This Tool

Stock screening is commonly deployed by investors to ‘cut through the noise.’ The approach is especially useful when considering the thousands of options available, which can often overwhelm investors.

From a different angle, screening is essentially the same as making a grocery list. A list helps you easily navigate a store, allowing you to quickly find what you’re looking for without wasting a chunk of time.

Still, screening is often seen as overwhelming and confusing, particularly when investors are unsure what to look for in a company. In addition, it’s not as simple as a one-screen-fits-all approach, as market participants all have different preferences.

Let’s take a closer look at screening and a few parameters available on Zacks that investors can use to find the stocks they want.

Screening Parameters

Parameters can be seen as the ‘ingredients’ of a recipe, excluding any irrelevant information. Digging deeper, parameters can be fine-tuned for any investing style, whether that be momentum, value, growth, or income-based.

Value Investing

Value investors can add several parameters to their screens to identify top-ranked stocks trading at attractive valuations relative to their history or respective industry. A few of these include the Price-to-Earnings (P/E) ratio, the Price-to-Sales (P/S) ratio, and the Price-to-Book (P/B) ratio. Zacks offers several premium screens tailored for value-focused strategies that include these parameters.

Momentum Investing

Momentum investing is all about riding the current trend, jumping into stocks that have enjoyed buying pressure. A few parameters investors can use for momentum-focused screens include the stock's price change over the last month, average volume, and price as a percentage of the 52-week high-low range. Zacks has many momentum-based screens with these parameters built in.

Growth Investing

Growth-oriented strategies are aimed at companies expected to grow their sales and earnings at an above-average level, a development that commonly leads to share outperformance. A few key parameters for growth investors include last year’s earnings and sales growth rates, expected growth rates for the current and next year, and the long-term expected EPS growth rate.

One of the Zacks premium growth screens returned a few stocks when run, namely Comfort Systems USA FIX and Credo Technology Group CRDO, two great examples of companies that have enjoyed rapid growth and are expected to continue doing so.

Income Investing

Income-focused investing is all about passive income, with dividend-paying stocks commonly being more ‘stable.’ Many dividend-paying companies are mature and, at the end of their growth cycle, choosing to share profits with shareholders rather than reinvesting for the future.

A few parameters investors can deploy when searching for dividend-paying stocks include current dividend yield and the 5-year historical dividend growth rate. No different than those above, Zacks already has several premium income-focused screens available for use.

Bottom Line

Screens are very useful tools for investors to filter out noise, allowing them to focus on preferred parameters. The process can often be overwhelming, though, with some unsure of what parameters to include.

However, for those not interested in building an individual screen, Zacks offers many pre-built screens tailored to common strategies, including growth, value, momentum, and income.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

Source Zacks-com