Tips And Tricks For Quick Stock Screening

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Building a stock portfolio is no easy task – there are thousands of publicly listed stocks in the US alone. Trying to filter that down to a portfolio made up of 10 to 20 stocks can seem like an overwhelming challenge. But by keying in on just a few specific ratios, investors can narrow down their search options to a manageable level.

Stock screeners come with any brokerage account and some are offered online for free as well. While there are a few differences, the ratios we’ll be discussing can be found in any stock screener. By isolating just a few, you can eliminate worthless stocks and focus just on the ones that fulfill your criteria.

Basic stock screening

While certain industries are exceptions, most stocks can be filtered out by looking for specific ratios and fundamentals. Depending on whether you’re searching for dividend payers, value stocks, or growth stocks, you’ll likely change your search criteria as well.

Regardless, there are a few important criteria you should know so you can search for the best stocks as efficiently as you can.

Price-to-Earnings (P/E) – This ratio is one of the most often used metrics when it comes to screening because it tells investors the earnings multiple others are paying for the stock. It’s one of the most basic ratios for estimating value in a stock and should be compared with industry peers in order to bring context to the figures.

Price-to Earnings-to-Growth (PEG) – Another essential ratio for virtually any stock, the PEG ratio shows investors the relationship between the P/E ratio and the EPS growth rate. A number higher than 2 means that investors are paying more than twice the EPS growth rate for the stock while a figure of 1 or less usually indicates an undervalued stock.

Debt-to-Equity – This underrated ratio is often overlooked but essential for determining the level of debt a company holds relative to its value. This figure can be wildly different depending on the economic sector of the stock and should be compared to industry peers for context.

Dividend Payout Ratio – Dividend seekers should pay particular attention to this ratio. It reflects the percentage of income that’s being spent on dividend payments. The lower the number, the more wiggle room during economic contractions and gives the company the ability to easily raise the dividend in the future. At 100%, the company’s entire income is used towards paying the dividend and anything more than that means the company is losing money by paying out a dividend – an unsustainable situation.

Final considerations

Other than using stock screens to search for potential investments, you can start off ahead of the game by building a watchlist. It takes a little homework, but knowing your top 5 stock picks for any given market sector allows you to quickly analyze winners and losers and identify what sector your portfolio would most benefit from. From there, it’s much easier to stay abreast of changing conditions and quickly take advantage of opportunities as they arise.