Beginner's guide to using screeners for stock selection

What is a Stock Screener?

A stock screener is a handy tool that helps investors and traders choose the best stocks based on their preferences. With 4000+ companies listed on stock exchanges, it would be impossible to analyze them all.

That's where stock screeners come in.

They filter out stocks based on factors like the P/E ratio, 52-week price change, market capitalization, and net sales. You can use multiple filters to narrow down your options and find the most suitable stocks for your investment goals. Stock screeners make stock selection much easier and more efficient.

How to Use a Stock Screener

Using a stock screener can greatly simplify the process of finding the right stocks for your investment goals. Ticker by Finology offers a user-friendly Stock Screener that you can access for free. Here's how you can make the most of it:

1. Go to the Screener: Click on the Screener tab in the top menu and then click on the "Go to Screener" button.
   
   

2. Choose from Sample Screens: Ticker provides some sample screen options based on common investment goals. You can select from these options to get started or create a custom screener based on your preferences.

   • Profit Givers: Find large-cap companies with a net profit growth of more than 15%.
   • Value Stocks: Identify undervalued stocks using the PE and PEG ratios.
   • Promoter Rich: Discover companies where promoters have a majority stake.
   • Dividend Yielders: Filter stocks based on their high dividend yields.

3. Set Your Filters: Customize the screener by adding ratios and filters. Ticker offers over 1200 ratios to choose from. As you type, smart suggestions will appear to help you select the appropriate options. Use "AND" when you want a ratio and other conditions to be met, and use "OR" when you want any of the given conditions to apply.

4. Run the Screener: Once you've entered all the desired ratios and filters, click on "Run Screener." The screener will generate a list of companies listed on the stock exchange that meet your specific criteria.

5. Explore the Results: Analyze the various alternatives listed and evaluate their suitability for your investment goals. Ticker provides an intuitive user interface to make the process as smooth as possible.

6. Refine Your Search: If you find that there are more companies in the list than you expected, you can easily add more filters or make the existing filters more strict to narrow down your options.

By following these steps, you can harness the power of the Ticker stock screener to discover promising investment opportunities. And if you're new to financial ratios and filters, you can improve your knowledge by exploring the "Usage Guide" on Ticker or taking relevant courses on Quest by Finology.

With Ticker, finding the right stocks has never been easier. Enjoy the simplicity and efficiency of this free and feature-rich stock screener to enhance your investing journey.

Key Features of Ticker Stock Screener

1. My Screen: Whenever you run any query, you get the option to save it under the "My Screen" option. This saves you time and allows you to quickly access your customized screens whenever you visit the screener.

2. Automatic Unit Conversion: When typing figures on the screen, Ticker assumes you are writing in Crores or % or Times by default, depending on the ratio. This eliminates the need to specify the unit every time you enter a value.

3. Smart Suggestions: Ticker provides smart suggestions as you type on the screen, making it easier to build queries and screen stocks effectively. Just click on one of the suggestions that pop up and experience a new way to create queries.

4. Free and User-Friendly: Unlike many other stock screeners available, Ticker is completely free to use. It offers a simple and intuitive user interface, making it accessible to both beginners and experienced investors.

With these key features, Ticker aims to provide a seamless and efficient experience for users, enabling them to effectively screen stocks and make informed investment decisions.

How do you find good stocks with a screener?

Finding good stocks using a screener can be a challenge, considering the vast number of ratios and filters available. However, by following a systematic approach and considering fundamental analysis, you can increase your chances of identifying promising stocks. Here's how:

1. Clarify Your Objectives: Before using a stock screener, determine the qualities you are seeking in a company. Consider factors such as market capitalization (large cap or small cap), debt ratio, profitability, growth potential, and dividend yield. Having a clear idea of your investment criteria will help you refine your search.
    

2. Focus on Fundamental Analysis: Utilize the various fundamental ratios and filters provided by the screener. These include financial indicators such as price-to-earnings ratio (P/E), price-to-sales ratio (P/S), return on equity (ROE), and debt-to-equity ratio. These ratios can provide insights into a company's financial health, valuation, profitability, and leverage. Choose the ratios and filters that align with your investment goals.
    

3. Consider Industry-Specific Ratios: Depending on the industry you are interested in, there may be specific ratios that can be highly relevant in evaluating stocks. For example, the price-to-book ratio (P/B) is commonly used in the banking sector, and the price-to-earnings-to-growth ratio (PEG) is valuable for growth-oriented industries. Research and identify industry-specific ratios to gain deeper insights into the companies within that sector. Ticker is the only platform to have banking-specific ratios like CASA, NIM, CAR, NPA, etc., for users to analyse with ease. 
    

4. Set Reasonable Parameters: Be realistic and set parameters that align with your risk tolerance and investment strategy. Avoid being too restrictive in your filter settings, as overly narrow criteria may limit your investment opportunities. Strike a balance between being selective and allowing for potential growth and diversification.
    

5. Analyze the Results: Once you have run the screener and obtained a list of companies that meet your criteria, conduct further research and analysis on these companies. Consider factors such as their competitive advantage, management quality, growth prospects, industry trends, and overall market conditions. Evaluate financial statements, annual reports, and news updates to get a comprehensive understanding of each company's fundamentals.
    

6. Continual Refinement: Adjust and refine your filters periodically to adapt to market changes and evolving investment objectives. Regularly review and update your screener parameters to ensure they align with your current investment strategy.

By following these steps and leveraging the power of a stock screener, you can uncover good stocks that match your investment goals. Remember, fundamental analysis plays a crucial role in assessing the financial health and growth potential of a company. Combine the insights from your screener with thorough research to make informed investment decisions.

Let's make a sample Stock Screener

Seeing the above steps, a good screener should have basic parameters like:

1. Low Debt to Equity
2. High ROCE
3. High ROE
4. Good Profit Growth
5. Good Sales Growth 
6. Low Promoter Pledging
7. Low PE

If we use the above parameters in Screener, we get 56 stocks now. 

One can edit and analyse the parameters as they like it. It is always advised to do your own fundamental analysis before investing in any company.

A stock screener is only for making things easy by filtering out a few companies, as 95% of companies listed on the stock exchange might not be worth investing money in. So, you need to do proper research over the results provided by the screener and pick out the companies which are worth investing in.

Uses of a Stock Screener

A stock screener is a powerful tool that enables investors to filter and analyze stocks based on specific criteria, resulting in several key benefits. Firstly, it allows users to narrow down the vast universe of stocks into a more manageable list by applying filters such as market capitalization, P/E ratio, and dividend yield.

With customizable features, investors can tailor the screener to match their unique investment approach, whether it's focused on value, growth, or income. The tool also helps identify investment opportunities quickly and efficiently, aids in risk management by excluding high-risk stocks, allows for sector and industry focus, saves time in research, and enables focused decision-making by narrowing down options.

Let's discuss some of the uses such as :

1. Stock Filtering
2. Customizing for Your Investment Approach
3. Opportunity Identification
4. Risk Management
5. Sector and Industry Focus
6. Time-Efficient Research
7. Focused Decision-Making

1. Stock Filtering

It narrows down the list of thousands of companies into a manageable list by applying filters based on criteria such as market capitalization, P/E ratio, dividend yield, and other fundamental or technical indicators.

2. Customising for your Investment Approach

You can customise your stock screener to match your unique investment strategy. This involves tailoring the tool to focus on specific criteria that resonate with your chosen approach, whether it's centred around value investing, growth investing, or income-focused strategies.

Opportunity Identification

A stock screener can easily identify the opportunities available for you, allowing you to pinpoint potential investments swiftly. By setting criteria that highlight stocks with positive financial indicators, earnings trends, or other favourable factors, you can efficiently uncover opportunities that align with your investment objectives.

3. Risk Management

Effective risk management is facilitated through a stock screener. By excluding stocks with high volatility, excessive debt, or other risk factors that don’t align with your risk tolerance, the tool helps ensure a more secure and controlled investment portfolio.

4. Sector and Industry Focus

The ability to target specific sectors or industries is a valuable feature of a stock screener. By using sector-specific filters, you can concentrate on areas of the market that align with your views on growth, stability, or industry trends.

5. Time-Efficient Research

The stock screener makes the research process more effective and efficient, saving you time by automating the identification of stocks that match your criteria. This time-efficient approach reduces the need for extensive manual research, making it easier to stay on top of your investment decisions.

6. Focused Decision-Making

 By using a stock screener, you can concentrate on a specific subset of stocks that match your investment strategy. This focused approach helps you make informed decisions without getting overwhelmed by the huge volume of available options.

Limitations of a Stock Screener

While stock screeners offer several benefits, they also have certain limitations. Firstly, they mainly focus on quantitative data, lacking the ability to provide qualitative information that considers market conditions, industry dynamics, or company-specific events. Additionally, stock screeners heavily rely on historical data, which may not accurately predict future performance.

There is also a risk of missing out on potential opportunities as screeners may exclude stocks by a small margin that could still have great potential. Moreover, using stock screeners requires specific criteria, and using too few filters may result in too many options to analyze effectively.

A few of the limitations of a stock screener are:

1. Focuses only on Quantitative Data
2. Reliance on Historical Data
3. Might Ignore a Great Opportunity
4. Need for Specific Criteria

1. Focuses only on Quantitative data

Stock screener mainly provides only quantitative data, it does not have the ability to offer qualitative information. This means that it may not consider the context of market conditions, industry dynamics, or company-specific events. Investors using screeners have to do their analysis with additional qualitative research to gain a more comprehensive understanding of potential investments.

2. Reliance on Historical Data

A stock screener often relies on historical data to identify trends. However, past performance does not guarantee future results, and market conditions can change anytime. So investors need to realise that relying solely on historical trends identified by a screener may not provide a complete picture of a stock's future potential, and they should do their own research as well for making decisions.

3. Might ignore a great opportunity

A Stock screener might miss a great opportunity to invest by filtering out a stock just because it does not qualify a filter by a very less margin. So many stocks which are actually good and have great potential might not be in your search list. 

4. Need for specific criteria

The use of stock screener is to limit the number of options but to do that, we need to use multiple filters. Because there are thousands of companies available and to bring that number down to 100-200 we need to apply some very strict filters also. If an investor puts two to three filters only it will result in too many options.

Conclusion

A stock screener is a powerful tool for investors to filter and identify potential investment opportunities based on specific criteria. By using parameters such as market capitalization, debt-to-equity ratio, price-to-earnings ratio, earnings per share, compound annual growth rate, return on capital employed, dividend yield, price-to-book ratio, and promoter holding, investors can narrow down their choices and focus on stocks that align with their investment goals.

However, it's important to note that a stock screener is just the first step in the investment process. It provides a starting point for further research and analysis. Investors should conduct thorough fundamental analysis, consider market trends, evaluate the industry outlook, and review company financials before making any investment decisions.

Additionally, it's crucial to remember that investing in the stock market carries risks. Even with a comprehensive stock screener, there are no guarantees of success. Therefore, investors should exercise caution, diversify their portfolios, and consult with financial professionals before making any investment decisions.

Overall, a stock screener is a valuable tool that can help investors save time and effort in the stock selection process. By combining it with thorough research and analysis, investors can increase their chances of making informed investment decisions and potentially achieving their financial goals.