Stock Screens (1)

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The computer has changed the landscape of stock analysis.  Instead of the drudgery of searching through reams of printed information to find stocks with desired financial strengths and ratios,  an investor can access and create computerized stock screens to identify companies which meet his or her requirements.  Most, if not all, brokerage companies with an on-line presence provide their customers with this time saving tool at no charge.  Individual investors can create their own screen, setting it up with his or her desired financial characteristics and save it for future reference.

If, for example, the investor wants a list of companies traded on the New York Stock Exchange (NYSE)  with market capitalization of two billion dollars or more; annual earnings growth of not less than 15%;  paying a dividend of not less than 2% per annum, and trading at a price earnings ratio of not more than 15, then he or she enters these requirements and the screen will find those publicly traded companies which meet them.  Value, growth and contrarian investors can adjust the screening requirements to fit their particular investment strategies and press the "enter" button for the results.  In seconds, a list of investment candidates appears on the screen.

In setting up the screen, the investor can establish the stock exchanges to be searched: the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the NASDAQ, and the over the counter market (OTC) or all of them.  If the investor were to choose all of them, the universe of stocks to be screened would include over 7,000 companies.  The level of market capitalization (stock price multiplied by number of traded shares) can be established.  The investor can limit the screen to companies in a particular industry.  The screen can search for companies paying a dividend with a specific yield or trading at a certain price limit.

A screen can be programmed to search for companies with preset analysts' ratings.  The investor can set the screen to look for companies with histories (up to five years) of desired revenue and earnings growth rates or with analysts' revenue and earnings estimates going forward.  If the investor wants to focus on price, various standards can be established, including the price performance of a company when compared to its industry or to the S&P 500 index.

Valuation ratios can be established, such as price/earnings, price/book or price/sales.  Of particular importance to investors looking for dividends would be the dividend payout ratio.  This ratio measures what percentage of a company's earnings are paid out annually to shareholders in dividends.  The lower the ratio, the better the chances that the company should not have to reduce or suspend its dividend payments in the future.The screen can be set for various tests of financial strength such as ratios for debt to equity, return on equity, quick and current ratios and cash flow per share, to name just a few.

There are also various settings for technical measures of a company, but these would, typically, be of little interest to a fundamental investment strategist.  In the next blog, we will run a test screen with some metrics and see what happens.

Comments are always welcome.