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How To Use A Stock Screener

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(disclaimer: there are plenty of stock screeners on the market. Although this is an educational article teaching investors how to use a stock screener, we will be focusing on the Robur stock screener in this example. The theory is still applicable to the screener of your choice)

One of the most common problems an investor faces is where do I start? There are over 40,000 publicly traded companies in the world and building a list of potential investment candidates can be a daunting task.

However, this still leaves us with a colossal 3000-4000 that as investors we may be interested in. As investors, we all have different investing techniques, some are looking for income stocks, some capital gains. Some use a contrarian investment strategy, some like to invest and hold relatively safe large cap companies. None of these techniques are wrong, and as long as proper financial due diligence is performed they should all equate to a positive return on investment over the long run.

Yet where to begin? This is where the stock screener can help us.

The usual premise is that an investor starts with an idea for a sector and/or geographical location that they are interested in. This may be their area of expertise, or they may have read an article about a particular industry somewhere. A typical article may read like this one, that suggested the best sectors to invest in for 2014 were technology, industrial and consumer discretionary stocks.

Let us assume that you like the idea of industrial stocks, they often carry a strong balance sheet, have a long financial history and pay a decent dividend. Let us also assume that you are buying this stock for primarily income, but also potential capital gains. One of the cheapest countries for dividend withholding tax is the UK, which is a flat 10% (note there are some countries such as Spain and Holland that allow you to receive stock as dividend instead of cash).

 

Step 1 – Select geographical location and sector

So we have decided to invest some of our disposable income in the UK industrial sector. We now need to turn to our stock screener. If you are using the Robur Terminal, after logging in simply select ‘UK‘ in the ‘Select Countries‘ bar, and ‘Industrial‘ in the ‘Select Sectors‘ bar.

 

examplelocation

 

The stock screener is now displaying 11 companies that meet the Robur Terminal criteria. It conveniently ranks them from top performing to bottom performing, based on their 5 year fundamental company financial data

 

examplelocation1

Step 2 – Filter out companies which do not meet your criteria

Since we are looking for income, we want do not want to display companies that pay less than a 3% dividend. This is done in the left hand column, under the optional filters tab. Drag the yield bar so that it reads from 3-10+. We also do not want companies that are too expensive, every industry is different (technology stocks will have a higher acceptable P/E ratio than say, utilities). There is no right or wrong cut off point, but I personally am not happy with any stock with a P/E ratio higher than 12, so we also adjust the filter accordingly to 0-12.

 

examplelocation2

Step 3 – Check current indicators

According to my investment criteria there are now only 2 companies that fit my requirements, which makes doing the follow up individual due diligence a lot easier. In this case, the top performing company scores a 57% (anything above 50% according to the default preferences is pretty good). Switching to the ‘Indicators‘ tab in the left hand column gives us an idea of the companies current state.

 

examplelocation3

 

The ‘buybacks‘ and ‘goodwill‘ numbers are a 3 year average, the remaining figures are current ratios. Neither company is spending cash on buying back shares, we see this as a good thing, cash should be invested in building the business not in concentrating the number of shares available (although some investors disagree).

The Robur M score of both companies is above 2, which is good and the enterprise value is understandably high (you can read about what they mean here). The Robur score suggests that I should not be interested in Cape, and we can see some of the reasons why here. They are spending a lot on goodwill and they do not have a P/E ratio, which would indicate that they have a negative earnings. They have an attractive yield but if they are not turning a profit then it may be difficult for them to sustain it.

 

Conclusion

In this example you can see how we have effectively used a stock screener to build a list of potential investment candidates. We were lucky this time that there were only 2 companies that fit our criteria, but often this will not be the case. However stock screeners are not perfect, they should only be used as a tool to narrow down the investable universe ‐ it is important that further research and due diligence is performed on each individual company before a buy/sell decision is to be made.

  • Alex Strong

    Hello David,

    How do I use a free Screener and which one do you recommend? to show me:

    1) The top 10 most liquid options that moved the most % in a day?

    2) Top 10 most liquid options moved the most% in a week time frame?

    3) The top 10 most liquid Futures that moved the most % in a day time frame?

    Kind regards,

    Alex

    alexstrong27@gmail.com

    • David Geof

      Hi Alex,

      This is some quite stringent technical data you are trying to screen. Assuming you are only looking to cover the US then Finviz will probably be your best choice as they have quite a few technical analysis tools.

      Try out their free version to see if it fits, if not they have a relatively cost effective pro subscription with more advanced features which may help

      best of luck
      David

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