Stock Screening Made Simple: A Closer Look

Stock screening is commonly deployed by investors to ‘cut through the noise.’ The approach is especially useful when considering the thousands of options to choose from, which can often overwhelm investors.

Screening is essentially the same idea as constructing a grocery list. A list helps you easily navigate a store, allowing you to quickly find what you’re looking for without wasting a chunk of time.

But it an quickly become overwhelming, particularly when investors are unsure what to look. In addition, it’s not as simple as a one-screen-fits-all approach, as investors all have different preferences.

Let’s take a closer look at screening and a few parameters available at Zacks that investors can deploy to find the stocks that they want.

Screening Parameters

Parameters can be seen as the ‘ingredients’ of a recipe, excluding any irrelevant information. Digging deeper, parameters can be fine-tuned for any investing style, whether that be momentum, value, growth, or income-based.

Value Investing

Value investors can add several parameters to their screens to find high-quality stocks trading at a discount. A few of these include the Price-to-Earnings (P/E) ratio, the Price-to-Sales (P/S) ratio, and the Price-to-Book (P/B) ratio. Zacks has several premium screens tailored toward value-focused strategies that have these parameters built in.

Momentum Investing

Momentum investing is all about riding the current trend, jumping into stocks that have enjoyed buying pressure. A few parameters investors can deploy for momentum-focused screens include the percentage price change in the stock over the last month, average volume, and price as a percentage of the 52-week high-low range. Zacks has many momentum-based screens with these parameters built in.

Growth Investing

Growth-oriented strategies are aimed at companies expected to grow their sales and earnings at an above-average level, a development that commonly leads to share outperformance. A few key parameters for growth investors include last year’s earnings and sales growth rates, expected growth rates for the current year, and the long-term expected EPS growth rate.

One of the Zacks premium growth screens provided us with a few stocks upon running: Credo Technology CRDO and Robinhood Markets HOOD, two great examples of companies that have enjoyed rapid growth.

Credo Technology has benefited from the AI frenzy, with CRDO’s results regularly highlighting strong demand. Robinhood Markets has enjoyed serious user growth, also reflected in HOOD’s quarterly releases.

Income Investing

Income-focused investing is all about passive income, with dividend-paying stocks commonly being more ‘stable.’ Many dividend-paying companies are mature and, at the end of their growth cycle, opting to share profits with shareholders rather than reinvesting for the future.

A few parameters investors can deploy when searching for dividend-paying stocks include current dividend yield and the 5-year historical dividend growth rate. No different than those above, Zacks already has several premium income-focused screens available for use.

Bottom Line

Screens are very useful tools for investors to filter out the noise, allowing for full focus on preferred parameters. The process can often be overwhelming, though, with some unsure of what parameters to include.

However, for those not interested in building out an individual screen, Zacks has many pre-built screens tailored toward common strategies, a list that includes growth, value, momentum, and income.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research