Stock screening is a quick and easy way for investors to identify potential investment opportunities. The time we save from sifting through the seemingly endless list of publicly traded companies can be better used instead to analyze the companies that pass our filters.
Beyond the obvious time-saving elements of stock screening, quantitative or mechanical investing also helps to curtail the emotional element of the investment decision-making process. Emotions can undermine an investment strategy—and adversely affect performance—by causing investors to make rash or inconsistent investment decisions. Subscribing to a proven stock selection approach adds consistency and stability to the decision-making process.
A recent Google search for “stock screeners” turned up nearly 20 Web-based stock screening services. Many financial websites offer some level of screening, but their sophistication, and usefulness, varies. Just as stock screening is necessary to isolate potential investment candidates, this comparison is intended to highlight the “best” services available to individual investors for fundamental stock screening. These are tools we use in our own stock analysis at AAII. They are the online stock screeners with the best blend of value, flexibility, breadth of coverage and ease of use. These services cater to investors looking to create their own stock filters versus those websites that merely provide listings of companies matching predefined criteria.
The comparison grid lists information about subscription costs (when applicable), service features, and basic database content for our Editor’s Choice selections. Individual ratings and strengths and weaknesses of the top services are outlined on page 26 in Table 1. Reviews of our Editor’s Choice selections among online screening devices begin here. For an expanded comparison grid of noteworthy screeners, be sure to check out the online version of this article.
These days, almost all stock screening services are Web-based. AAII’s Stock Investor Pro is one of the last remaining disk-based stock screening services for individual investors, but it too may be headed to the “cloud” in the future. Historically, software-based screening services have been much more powerful and flexible when compared to most online screeners in terms of the number of screening elements or data fields and the depth of the database. However, Web-based services such as the ones covered in this comparison tend to update their data on a timelier basis.
The screening systems we have assembled here (and in the expanded comparison grid) vary in their emphasis and capabilities. When comparing stock screening services, important factors for you to consider include:
There tends to be a noticeable difference between the free and fee-based services. Many financial websites offering online screening tools appear to do so out of obligation, and their lack of quality and flexibility reflect that fact. Three of our four Editor’s Choice picks are fee-based, including newcomer StockScreen123.com, which costs nearly $400 a year. Zacks.com Free Custom Stock Screener supplants CBNC.com this year as our top pick for free fundamental stock screening.
Stock screening dictates that the search process begin with a broad universe of companies. The top online screeners cover a wide range of companies, with all of our top picks providing a screening database of over 8,000 companies. If you are interested in smaller firms, you may want a screener that tracks NASDAQ Bulletin Board over-the-counterstocks—those stocks that do not meet the requirements of an organized exchange.
Screening services also distinguish themselves by the depth of information they provide. Services in our extended online comparison grid—such as William O’Neil + Company’s Marketsmith.com, ValuEngine.com and Validea.com—provide fewer “raw” data elements per company, instead relying on summary statistics such as ratings and ranking when providing background data on individual companies. Our Editor’s Choice selections rank the best in terms of offering summary statistics along with the raw data behind those numbers.
When considering a screening service, it is best to look beyond the number of variables they offer and consider which statistics they provide. MarketSmith.com, ValueLine, and Morningstar.com Premium (an Editor’s Choice selection) have proprietary ratings for company growth, profitability, financial health, and valuation, which may be more important for some investors than the overall depth and completeness of the database.
The online version of this article includes a table detailing the specific data items offered to give you a complete picture of the data emphasis of the services we cover.
No matter how complete we may think a screening database may be, few if any will ever provide every screening variable we want. This is where the ability to create your own custom fields—and a custom screen—becomes important. Custom fields allow you to create ratios omitted from the database or generate valuation models that attempt to determine the “fair” value of a stock. This feature is an important consideration if your analysis tends to be more specialized.
Among our Editor’s Choice selections, SmartMoney Select and StockScreen123.com offer custom variables.
Company information primarily consists of basic data such as a company’s Web address and phone numbers, and where you can access company financial filings or contact the investor relations department. Usually a description of the company’s operations is also given, along with industry and sector designations.
The primary driver of stock prices is expectations of future earnings and growth in earnings. One measure of market expectations is the consensus earnings estimate. Consensus estimates are calculated by polling the analysts tracking a given company. Services may also poll analysts to report their ratings on the overall attractiveness of stocks in an attempt to derive uniform consensus recommendations.
These estimates and recommendations allow investors to directly gauge the expectations that are built into the stock price. If expectations change, it is reasonable to expect the stock price to adjust to reflect the new consensus. Look for an indication of recent revisions in earnings estimates or an earnings (or revenue) surprise—reported earnings above or below the consensus estimate, which may impact share price for as long as a year.
Also, analyst forecasts of future quarterly and annual revenues are becoming increasingly popular: When companies exceed or fall short of revenue estimates, it is often reflected in short-term price movement.
Valuations are an attempt to measure the price attractiveness of a given stock. Some services provide numerical valuation ratings, while others provide price targets based on proprietary models or consensus price targets from analysts.
Some services also try to differentiate themselves with proprietary ratings and valuations. For example, Morningstar.com provides its proprietary “Star Ratings” as well as fair value prices for select companies in its database.
When using valuations, it is important not to be seduced by the end numbers; instead consider the underlying assumptions, rationale and, perhaps most importantly, the reasonableness behind the rating or “fair price.” Some systems are qualitative in their approach, which is more subjective, while others are quantitative or data driven. If provided by a third party, the source of valuations is usually provided.
The comparison grid indicates if a service provides a fundamental or technical rating or valuation. Since risk and return are interrelated, the valuation segment of the grid also indicates if a risk measure or ranking is also available.
Ratios are useful for summarizing financial statement data into a format that can be easily manipulated to compare year-over-year changes in the company, compare one company to another, or compare a company against sector, industry or market benchmarks.
Leverage ratios examine the company’s use of debt in its financial structure. Prudent use of debt can enhance shareholder profitability. When companies take on too much debt, it saddles them with an interest payment that must be paid in good times and in bad. Failure to make these debt payments will lead to bankruptcy, which typically wipes out common equity shareholders. Commonly used leverage ratios include debt to equity, liabilities as a percentage of assets, long-term debt as a percentage of capital, and interest coverage.
Liquidity ratios are meant to gauge a firm’s ability to meet its short-term obligations. Typical liquidity ratios include the quick ratio, current ratio, and dividend payout ratio.
Profitability ratios benchmark company performance and highlight trends when examined over time, as well as indicate strong or weak performance relative to other firms or sector/industry norms. Common profitability ratios include return on assets, return on equity , return on investment or invested capital , gross margin (GM), operating margin (OM), and profit margin (PM).
Multiples form the cornerstone of many fundamental screens, especially those that are value-oriented. They relate the current stock price to a tangible company item, such as earnings, sales, or book value per share. Look for a broad range of multiples covering items such as earnings, book value, cash flow, and dividends. Some sites also measure the relationship between a company’s price-earnings ratio and its earnings growth, called the PEG ratio.
Historical ratios help indicate normal trading ranges for a stock and provide a base for comparison against current multiples. Therefore, historical average multiples are a key element when choosing an online screening service.
Growth rates paint a picture of past company performance and provide an easy way to compare companies.
Some investors seek out quickly growing firms with the hope that growth will continue to fuel the share price. Five-year growth rates for sales, earnings and dividends are typically the norm. The more robust services have a wider range of growth rates covering multiple time periods and data fields.
Price and share data describe various market-related aspects of a company’s common stock. The extent and detail of historical price data as well as volume data are provided in the comparison grid.
If you focus on price momentum, look for enough price data to examine price movement or look for summary statistics such as relative price strength or percentage price change.
Other measures such as MPT statistics (modern portfolio theory measures—alpha, beta, standard deviation, etc.), relative strength, and market capitalization, are also indicated in the comparison grids.
Short interest is the total number of shares outstanding of a particular stock that have been sold short by investors but have not yet been covered or closed out. Short interest can also be expressed as a percentage (number of shorted shares divided by the number of shares outstanding) or as a ratio (the number of shares sold short divided by the average daily trading volume).
Holdings and actions by insiders or institutions are also noted in the comparison grids both here and online.
Industry comparisons are useful in identifying standout firms. Multiples, growth rates, and ratios give you an added level of information when analyzed in the context of industry norms. Look for services that provide industry statistics or that at least allow you to screen for companies in a similar industry so you can analyze those firms as a group. Some sites even allow you to screen for companies that are outperforming industry norms.
Raw financial statement data serves as the basis for the calculation of ratios, growth rates and multiples. It is also useful for analyzing a single firm to identify trends, but it is more difficult to use directly in screening and ranking, or for comparing companies. Nevertheless, the better screening sites include enough information from the balance sheet, income statement, and cash flow statement to judge whether the ratios and growth rates properly reflect the company’s prospects.
|Criteria are rated on a scale of one to five, with five denoting the best score. Performance rates how well the service accomplishes its stated objectives; Documentation rates the quality of online help and support; and Ease of Use rates how simple the system is to learn and operate.|
|Performance||Documentation||Ease of Use||Price||Pros||Cons|
$21.95/mo. Or $189/yr.
(free 14-day trial)
& style categories
& stock data
+Historical screening data
|–Unable to export screen results|
$5.95/mo. Or $58/yr.
(free 14-day trial)
+Create custom variables
+custom company reports
+Export screening results
|data cut to 5 yrs/5 qtrs|
(free 30-day trial)
+Backtest screen strategies
+Create custom variables
+custom company reports
|–Steeper learning curve|
Custom Stock Screener
+Most screen variables
of free services
+Extensive analyst rating
& estimate screen variables
|–Does not offer quarterly|
|financial statement data|
|–No screen against industry,|
|sector or market benchmarks|
Some sites offer practically no raw financial statement data, while others provide rich company histories. By examining the year-over-year earnings of a firm, you can gain a feel for performance consistency and earnings trends, which growth rates often hide. The expanded online version of this article includes the financial statement information provided by our Editor’s Choice selections. We also provide this information for other screening sites in our expanded online coverage.
The core feature of any screening system is its set of screening capabilities. The comparison grids here and online include several categories that describe the screening features of each site. When designing a stock screening strategy, the service should allow you to screen against a constant value or another data field, a feature all of our top picks provide. More robust sites will also allow you to compare a value against industry and index norms or benchmarks. Services such as the SmartMoney Select Stock Screener provide benchmark values for fields to help you construct reasonable comparative screening criteria.
One useful feature often lacking in Web-based screening tools is tracking the number of companies passing each individual filter or screening criterion. This functionality allows you to pinpoint the most restrictive filters of your screen, which comes in handy when you develop a screen that only has a few passing companies (or none at all). Relaxing the most stringent elements of a screen may increase the overall number of passing companies. Among the online screening services we looked at, only CNBC.com’s Stock Screener and Morningstar’s Premium Stock Screener track line-by-line screening results.
Most simple Web-based tools do not allow you to save the screens you develop for use at a later time. This forces you to recreate the entire screen every time you visit the site. However, all of the Editor’s Choice picks highlighted here allow you to save your custom screens for future use. In addition, the comparison grid indicates those services that offer their own predefined stock screens.
Most online screening services list the companies passing a given screen in table form, and some offer links within these tables for additional company-specific data and information.
When available, an individual company report will typically detail the information provided by the database for a company.
Tabular reports allow you to compare specific data items for a group of companies.
Less common, but very useful, is a report listing summary statistics for the set of passing companies or for a particular sector or industry.
Typically, the more robust an analysis tool is, the more difficult it is to learn how to use it effectively. The pure HTML-based services are often little more than boxes where you enter in minimum and maximum values for a predefined selection of data fields. While these services are easy to use the first time, repeated fine-tuning of your strategy can become very tedious, since they lack the functionality of saving custom screens. Individual reviews of our Editor’s Choice selections below and ratings in Table 1 address these issues, among others.
Morningstar.com is a full-featured investment website providing portfolio tracking, market monitoring, stock and mutual fund screening and research, educational articles, and message boards. Visitors will find a solid amount of free content at the site, while additional portfolio analysis, analyst research, and arguably the best online screening are available through the premium service for $21.95 per month.
Research on the site consists of stock screening coupled with research reports. Morningstar provides ratings and analyst reports on roughly 2,000 stocks in over 100 industries. These reports are restricted to premium subscribers, but all users can screen for stocks with high grades.
The premium screening module offers over 450 screening criteria and a database of 10,000 stocks. Subscribers may screen against constant values, industry benchmarks, values of specific tickers and database benchmarks.
There are a number of proprietary Morningstar ratings and grades that subscribers can screen on, including star rating, fair value, economic moat, stewardship, growth, profitability, and financial health.
Many online screening services only allow you to screen for current values, but the Morningstar Premium screener has historical values for many fields going back as far as five years; year-over-year and quarterly growth rates; and much more.
Subscribers can also save their custom screens and create custom views for analyzing screening results.
Comprehensive stock reports start with an overview snapshot and lead to a detailed company profile; financial statements and ratios; charting; stock price performance statistics; stock, industry, and market multiples; earnings estimates and analyst opinions; industry snapshot; insider and institutional shareholder activity; SEC filings; and news. Premium subscribers have 10 years and 10 quarters of income statement, cash flow, and balance sheet data in total dollar, per share, and even common size formats. The premium reports add details such as Morningstar ratings and analyst research.
The Smart Money website combines the editorial content of its magazine with a rich array of useful investment tools and research. The free portion of the site covers the essentials—portfolio management, market news and updates, charting, company and mutual fund research, mutual fund screening, as well as educational articles on financial planning and investment analysis. However, the screening module is only available with a SmartMoney Select subscription, which is $5.95 per month.
The site’s premium screener is interactive and provides access to over 140 data variables. Subscribers can compare screening criteria against fixed variables. While the module does not handle comparisons against index and industry norms in the same way other services do, it does provide the values of various index norms that you can use for screening. Furthermore, the screener allows you to enter custom formulas to screen on, which separates it from most other online screening services.
Users can save custom screens and choose from over 20 predefined screens. Once you run a screen, you can create a spreadsheet and download a report on the passing companies with the data fields you want. You can also generate custom “snapshot” reports in PDF format with data groupings you specify.
Sadly, Smart Money has scaled back its financial statement offerings since our last comparison. After supplying 15 quarters and 10 years of income statement, balance sheet and cash flow statement data for many years, it now only offers five years and five quarters of data.
StockScreen123.com is a newcomer to the online stock screening scene and has made an immediate impact, making our Editor’s Choice list. This service provides unique abilities such as custom screening factors and screen system backtesting. This added flexibility and functionality does come at a price, however, as a yearly subscription costs $395 after a free 30-day trial.
The screening database has over 8,000 companies and approximately 500 screening parameters (the most of any screening service we looked at for this comparison). When screening, you can screen upon absolute values, industry medians and percentile rankings by industry, sector and market.
When performing screens, you can opt for a menu-driven wizard or a more flexible free-form screening. The screening wizard is similar to most other online screening systems and is relatively easy to operate. For more do-it-yourself screeners, the free-form method offers greater flexibility but is still reasonably easy to use. With the free-form screening filters, you can type or paste screening functions or use menus to select the screening variables you wish to use.
The free-form feature is also what you use to create custom fields, which you can use for screening. However, you cannot use custom fields within custom fields.
Perhaps the most exciting feature of StockScreen123.com is its backtesting functionality, something no other online fundamental stock screening service we have looked at offers. You can backtest screening systems to March 2001 and institute several parameters to better emulate real-world conditions: price slippage percent and purchase price—next close, next open, or average of next open and close. You can also choose a predefined or custom ranking system to further limit the number of companies that pass a screening system.
Equally impressive with the StockScreen123.com website is the amount of data available for individual companies—over 2,000 data points per company. When analyzing an individual company, you can choose from different data “panels” to create a company report. Data includes eight years of detailed financial statement data; annual percentage change in income statement, balance sheet and cash flow items; consensus analyst earnings estimates and ratings; and more.
Zacks.com Free Custom Stock Screener replaces CNBC.com as our favorite free fundamental stock screening service. Historically, Zacks is perhaps best known for its earnings estimate data. Over the years, however, it has grown into a hub for in-depth stock analysis. The service offers 120 screening variables and registered users can save their screens. Tapping into Zacks collection of estimates, the free custom screener offers an extensive number of estimate-related variables, for both earnings and revenues.
Compared to the premium screener from Zacks.com, the free custom screener is only lacking proprietary Zacks variables. This is in stark contrast to the difference between the free and premium screeners offered at Morningstar.com, where the free screener is significantly less robust than the premium service.
For screening, Zacks allows you to screen against constant values, without any comparative market, industry or sector benchmarks. Registered users can also save custom stock screens.
Each week the site highlights a stock screen from a Zacks’ analyst, outlining the methodology, screening criteria and five stocks that pass the screen that week.
Zacks.com also provides a wide array of data for company analysis, much of which is free. There are printer-friendly company reports, estimates reports, and industry comparison reports. The site also offers five years of income statement, balance sheet and cash flow data. However, it does not offer corresponding quarterly data.
It is important to realize that stock screening is only the first step in the decision-making process. The results of a stock screen reflect a collection of companies sharing a base set of characteristics. It does not represent a “recommended” or “buy” list. It is important to perform additional due diligence to verify the financial strength of the passing companies and then select those companies that match your investing tolerances and constraints. A good screening service will point you in the right direction, not get you to your ultimate destination.
GM = gross margin
NM = net margin
OM = operating margin
PM = profit margin
ROA = return on assets
ROE = return on equity
ROI = return on investment
P/E = price-earnings ratio
P/B = price-to-book-value ratio
P/S = price-to-sales ratio
P/CF = price-to-cash-flow ratio
P/FCF = price-to-free-cash-flow ratio
FCF/P = free-cash-flow-to-price ratio
PEG = P/E to earnings growth ratio