What Is a Stock Screener?

With over 7,000+ stocks on the U.S. stock exchanges, it can feel paralyzing if you don’t know where to start. Many people may think taking control of their own investments is too time-consuming or overwhelming, but it’s possible you just need to find the right stock analyzer tools that fit your needs. If you’re wondering how to find good stocks without spending ridiculous amounts of time searching for the right securities, you may need to look into how to use stock screeners.

In this article, we explain how to use stock screeners to your advantage so you can become a better individual investor and take control of your financial destiny.

What Is a Stock Screener?

Stock screeners, also known as stock screens, scanners or analyzers, are tools that allow individual investors to quickly sort through countless available stocks according to their own criteria. Investors can use these tools to cut down on the amount of time and effort it takes to research potential assets.

With stock screens, the average person can set their own criteria such as company size and other specific factors or they can follow well-known strategies that offer preset parameters.

Every stock screener is different; however, the service will typically update their screens on a daily basis to show investors which stocks are “passing,” which means they meet all criteria or filters in that specific screen.

It’s important for investors to understand that a passing company list of a stock screener IS NOT a buy list; it is a set of companies with the same base set of criteria that still require additional research.

The important takeaways about stock screens to keep in mind are:

• Stock screens are sets of variables/criteria/rules that either you set up or follow
• They are screening engines that find companies that satisfy specific rules or variables
• They include filtering tools that generate lists of stocks based on your criteria and preferences

There are stock screens for every type of investor; therefore, it’s crucial you understand what is available to you and what the differences are.

Types of Stock Screeners

The purpose of different types of stock screeners is to provide the investor with a wide range of stock selection strategies to choose from or the ability to create their own.

While some approaches follow the methods of well-known professionals—also known as “gurus”—others offer time-tested techniques and approaches. Some stock screens are broken out by investment style: value, growth & value, growth and specialty. As you can see, people may choose to use a specific stock screening tool depending on what type of investing strategy they want to home in on.

Guru Stock Screens

There are many different guru stock screens; however, they all share one thing in common: the transfer of knowledge. Guru stock screens allow investors to mimic a professional’s style of investing in hopes that the screens can identify stocks that will outperform.

Regarding AAII’s guru stock screens, we have developed more than 40 different stock selection strategies based on the investment philosophies of such investing masters as Warren Buffett, Benjamin Graham, Peter Lynch, William O’Neil and many more. With this stock analyzer, investors can look at the performance, characteristics and grades of stocks that pass the guru screens.

It’s important to note that guru stock screens follow the approach of an investment professional but do not necessarily represent their actual stock picks. The rules of each screen are defined by AAII’s interpretation of their respective investment approaches as outlined in books or articles written by or about the gurus.

There is no such thing as a one-size-fits-all stock selection strategy; therefore, it’s crucial that you do your own research before choosing which screen to pursue.

Factor Stock Screens

Factor investing stock screens choose companies based on attributes that have been shown to generate high returns. These attributes have come to be called factors and include small stocks, low valuation, high price momentum and high yield. AAII has developed nearly 20 separate stock screens that have factor investing criteria and rules based on these common investment attributes.

The factor strategies are identified by their attributes that have been shown to generate high returns; these factors include:

• Value
• Momentum
• Quality
• Growth
• Size
• Earnings Surprises and Revisions
• Yield

Examples of a few AAII factor stock screens include the Return on Equity screen, Price-to-Sales screen, and the Price-to-Free-Cash-Flow screen. All three of these stock screening strategies use a company’s specific financial metrics to find stocks that pass the screening filters.

Custom Stock Screens

There will be times where you may not want to follow a guru or factor stock screen and would rather create your own. The AAII Custom Stock Screener allows investors to filter for stocks based on a myriad of attributes in classifications such as:

• A+ Stock Grades
• Company Growth
• Company Performance
• Financial Strength
• Stock Performance
• Valuation
• Earnings Surprises & Revisions

Custom stock screens are good for investors who do not want to mimic another person’s strategy and don’t want to limit themselves to specific factors. Creating your own custom stock screen lets you have full control when it comes to finding stock ideas. This is also specifically helpful when you are considering which holes you need to fill in your portfolio to meet a certain allocation or strategy.

The Choice Is Yours

No matter which stock analyzer style you choose, you’ll be able to narrow down the long list of companies to consider with ease. Guru, factor and custom stock screens allow you to focus your attention on a smaller but more promising group of stocks.

Lastly, choosing a stock screen strategy encourages you to use a consistent framework to decide which stocks to add or remove from your portfolio. Discipline is a common trait shared by the successful investors that we have studied. And as we all know, it is often too easy to let emotions such as greed and fear take over the decision-making process and ignore the rational side of investing.

Benefits of Using Stock Screeners

It is important to understand the investment characteristics of any approach you are using. By browsing through the passing companies list of a stock screen, you can get a better idea of the kind of companies that a strategy favors along with a sense for any industry concentrations that may be generated.

A few benefits of using stock screeners include:

• Saves time when doing research about good securities to invest in
• Gives you the ability to filter using your custom criteria
• Removes psychological and behavioral biases
• Finds new opportunities you may have never heard of
• Easily compares and contrasts stocks in the same industry
• Provides you with clear, concise data
• Gives you with the ability to do your own research and have increased control over your stock selection preferences

Even the best stock screener can’t guarantee you great returns; however, what they can do is save you considerable time and effort researching potential investments. They can also help you easily identify potential candidates you would have otherwise missed or overlooked.

The overall benefit of using stock screens is to provide individual investors with access to a wide range of investment approaches so they can make a well-informed decision about the strategy they should pursue.

How to Use Stock Screeners

Even though they may seem intimidating at first, learning how to use stock screeners is easy once you know the basics.

As we mentioned earlier, AAII’s prebuilt stock screens are our interpretations of the approaches used by investment gurus or are based on factors that academic research and real-world results have shown to beat the market. Stock screens are based on a practical set of rules; the screens are only the first step.

In general, it is recommended that investors use stock analyzers to generate an initial list of potential investments that merit further research. And again, it’s important to remember that stock screeners are built to give you a starting point for your investing research, their results do not constitute a real-money portfolio.

Learn how to use stock screeners with these easy steps.

Prebuilt stock screeners:

• Decide which type of stock screener you want to use: guru, factor or another type
• Using AAII’s tools or another service, select a few potential options from the list of stock screens
• Read about the strategies of those specific stock screens and check their performance and holdings
• Compare and contrast which stock screener fits your individual investor needs
• Decide on one screen at a time to follow, especially if you’re just beginning to invest
• Compare companies within similar industries that are passing that individual stock screen
• Review prospective stocks’ overall performance as well as other key financial metrics
• Remember: The passing company list of a stock screener IS NOT a buy list; it is a set of companies with the same base set of criteria that still require additional research
• Add the prebuilt factor or guru stock screen to My Portfolio (if you’re using AAII’s A+ Investor or Platinum tools) so you can watch its performance over time
• Monitor your stock screen and review changes to the passing company list

Custom stock screeners:

• If you are choosing to use a custom stock screener, first decide what criteria means the most to you and make sure you track the filters that you’re adjusting
• If using AAII’s tools, you can use the Custom Stock Screener that gives you full filtering ability and options
• Once you’ve entered your criteria, take an in-depth look at the results to pick out viable stocks you might like to add to your portfolio
• Compare companies within similar industries and review performance
• Save the stocks you are interested in to a tracking portfolio or keep on a watchlist (My Portfolio at AAII.com)
• Review prospective stocks’ overall performance as well as other key financial metrics
• Monitor your picks and decide whether you need to adjust your stock screen’s filters
• Remember: The passing company list of a stock screener IS NOT a buy list; it is a set of companies with the same base set of criteria that still require additional research

When you’re analyzing stock screeners, it’s important to know that the performance shown for prebuilt screens is typically tracked on a monthly basis. With AAII’s stock screens, the month-to-month closing price for the stocks passing the screen is used to calculate the return, which assumes an equal investment in each stock at the beginning of each month. The impact of factors such as commissions, bid/ask spreads, cash dividends, time-slippage (time between the initial decision to buy a stock and the actual purchase) and taxes is not considered. This overstates the reported performance, but all screens are subject to the same conditions and procedures.

Best Stock Screener Parameters

If you’re looking for the best stock screen parameters, keep in mind that there is no one-size-fits-all stock screen, especially because every investor has different goals, strategies and needs. Investors will have different risk tolerances, objectives and time horizons for when they need to fund their financial goals.

If you’re unsure how to pick the best stock screener parameters to find good candidates for you, AAII provides some help at these areas:

• Stock Screens
• Custom Stock Screener
• A+ Stock Grades Screener
• Top/Bottom Rated Stocks
• Stock Upgrades & Downgrades

You can also check out the weekly featured stock strategy, featured member strategy, premium strategy and commentary. These features can help you find new stock selection opportunities without having to go down a rabbit hole.

We can’t stress this enough: Completing the necessary research before choosing a stock screening strategy that fits your needs is vital in becoming a successful individual investor. Don’t make hasty decisions without the right information. We encourage AAII members to compare and contrast stock screens across different services and organizations to see which ones are right for you.

Differences Between Paid and Free Stock Screeners

One choice you will have to make is whether to use a paid or free stock screener. There are many reasons why you would want to use a paid/premium stock analyzer versus a free stock screener—and vice versa.

In general, a free stock screener will give you the basic functioning to filter through thousands of stocks without the hefty price tag. This is a great option for beginning investors who want to see if stock screening is right for them. After you get the hang of how to use stock screeners, you may exhaust the abilities of the free version and want to upgrade to a premium service. But we encourage you to try out a few different free stock screeners first to see if they meet your needs.

Once you’ve consumed everything there is on a free stock screener, you may decide you need more control, more functionality, better customer support or other financial educational resources—this is where premium stock analyzer tools come into play. Investors who desire a large number of prebuilt screens developed by professional financial analysts may want to subscribe to a premium stock screener. Additionally, if you want to save, export, add to a watchlist or have a more advanced interface, premium stock screeners will give you more of an advantage.

Lastly, it’s important to find unbiased, data-driven screens that are developed by a team of financial analysts and are time-tested to ensure correct analysis. With free stock screeners, you may hit numerous pay walls as well as advertising and biased data if you’re not careful.

How to Find Good Stocks With Screening Strategies

If you’re wondering how to find good stocks when there are thousands on the market, it’s all about choosing the right screen for you. Additionally, it’s crucial for investors to be disciplined and stick to their strategic plan.

Finding stocks with screens isn’t overly difficult. Finding screens that consistently generate passing companies that align with your time horizon, investment objective and risk tolerance may be more difficult. Furthermore, it’s important to remember that any screening strategy, no matter how strong its long-term performance, will incur periods of both out- and underperformance—this is the case with both actively managed and passively managed approaches.

However, you may want to consider the type of market you begin investing in—bear versus bull. If value stocks are out of favor, a value-oriented stock screen will underperform the market. If growth stocks are in favor, a growth-oriented stock screen is likely to do better. If small-cap stocks are outperforming, specific small-cap focused stock screens are more likely to outperform market-cap-weighted approaches like S&P 500 index funds. Make sure to use the right benchmarks when comparing screens and strategies, and keep your eye on the long term.

Additionally, due diligence and research is required when using a stock screen to find good securities to invest in. This is what we mean when we say a passing company list of a stock screener isn’t a buy list. Just because a company passes your base set of criteria doesn’t necessarily make it a good investment. Taking a deeper dive in the company, its industry and its competitors can help you come to a conclusion.

Knowing all of this, there are stock screening strategies that outperform over time and reward those investors who have the discipline to stick with them. Choosing the best stock screening methodology should be based on research that has been shown to lead to long-term outperformance. These screens have criteria and attributes that make economic sense; in other words, there is a logical reason as to why they should work.

Using A+ Investor’s Stock Screening Tools

The first step in finding your preferred stock screener is to establish a clear and concise objective. This overall goal should reflect your return structure, risk tolerance and investment philosophy. Return structure should encompass not only the total return, but the relative contribution of dividend income versus capital gains. Your personal risk tolerance refers to how easily you can cope with volatility in an absolute and relative sense, and relative risk deals with the performance of a stock in relation to the market.

Before you choose your preferred stock screener, we recommend that you check out guru and factor screens to get an idea of buy/sell rules and other key parameters.

With A+ Investor, you get complete access to our Custom Stock Screener as well as our 60+ prebuilt factor and guru screens. At AAII, we believe investors should take their time evaluating which stock screening tool and strategy to use. We are dedicated to supporting the individual investor from the ground up, which means you can access the majority of our resources, education and tools even without a premium subscription.

Begin screening for potential new opportunities with A+ Investor today, or learn how you can bundle all four of our premium subscriptions under AAII Platinum.