Choosing the category

The first thing you typically see with a stock screening tool is the category. Actually, this means the sector or industry (see Chapter 13 for an introduction to industries). Many screeners (such as the one at Yahoo! Finance, https://finance.yahoo.com/screener) go into subcategories. Yahoo! Finance can help you screen stocks in the equity screener found at the top of the page; also useful are a mutual fund screener and an ETF screener.

If, for example, you’re looking to invest in a technology company, you click the equity screener link, go to the sector choice Technology, and then go to the industries within it. The industry choices (I found 12 at the time of writing) range from Information Technology Services and Electronic Components to the last one, Solar.

Distinguishing “min” versus “max”

Min and max are the yin and yang of the stock screening world. When you set your parameters for stocks, you need to set a minimum and a maximum. Some sites use terms such as “greater than,” “less than,” and “equals,” or they let you set a definable range between two specific numbers. If a stock screening tool uses the term “profitable stock,” that means you need to set a parameter of minimum profit. The stock investor takes the long view and stays patient and focused for successful value investing (find out more about this topic in Chapter 8).

Keep in mind that some stock screeners use a different approach than “min” and “max,” such as “less than” and “greater than,” but it essentially serves the same purpose for your searches.

Setting value ranges

In some cases, you may need to choose a range. Perhaps you’re looking for stocks in a particular price range. A stock screening tool may provide choices such as 0–10, 10–20, 20–30, 30–40, 40–50, and over 50. Other typical ranges you may see are market capitalization (the total market value of the company’s stock) and dividend yields (the dividend amount divided by the stock price).

Searching regardless of your entry

Most screening tools allow you to do a search whether you enter one value or parameter or many. If you choose to search for a stock in all categories and enter only, say, a dividend yield with a minimum value of 2 and a maximum value of 999 and no other entries, you’ll get hundreds of stocks.

However, if you input plenty of parameters, then you’ll get very few stocks (or none at all). If you ask for stocks with features A, B, C, D, and E, then you won’t get as many results. Be selective — that’s the whole point of using stock screeners — but don’t go overboard trying to find the perfect stock because it may not exist.

Getting close to perfection is probably good enough, but the more important point is to avoid the bad choices such as companies that have too little income, have net losses, or carry too much debt.

Before you begin: Selecting your screener

At the Yahoo! Finance stock screener page (https://finance.yahoo.com/screener), you see the following links at the top:

• Saved screeners: When you design your own screeners, you can save them for future use. This option will come in handy as you become experienced and proficient with screeners.
• Equity screener: This option is for finding and analyzing stocks. I work with this particular screener in the upcoming sections.
• Mutual fund and ETF screeners: When you’re looking for the right mutual fund or ETF, these screeners will help. (Check out Chapter 5 for an introduction to ETFs.)
• Future and index screeners: These categories are more for the speculators and traders in the world of futures and indexes, so I don’t cover them in this chapter (or book).

First up: The major categories

After you choose the equity (stock) screener in Yahoo! Finance, you have to address a few major categories first before you get to the “guts” of screening stock data (refer to Figure 16-1):

• Region: Here you enter data about your chosen country to refine your search. If you’re looking for U.S. stocks, the choice of course is “United States.” In the menu, you see countries with public stock exchanges ranging from Argentina to Vietnam.

• Market cap: In the Market Cap (Intraday) category, you can designate the criteria for your search based on market capitalization and choose Small Cap, Mid Cap, Large Cap, or Mega Cap.

  Looking for growth potential? Go for small cap or mid cap. Looking for more safety? Go to large cap or mega cap. Find out more about market capitalization in Chapter 1.

• Price: In the Price (Intraday) field, enter criteria based on share price, such as “greater than” or “less than” your chosen price. There are also options for “equals” and “between.”
• Sector and industry: A sector is a group of interrelated industries. For example, the healthcare sector has varied industries such as hospitals, medical device manufacturers, pharmaceuticals, drug retailers, and so on. Choosing an industry rather than a sector narrows your choices, as you find out in the earlier section “Choosing the category.” Flip to Chapter 13 for more information on sectors and industries.

The main event: Specific filters

After you make choices in the major categories covered in the preceding section, you drill down to find stocks that meet your standards with various filters. I don’t cover all the metrics here since there are literally too many to cover, but in the following sections, I briefly touch on the most relevant subcategories and then you can dive in. (To get to these filters in the Yahoo! Finance screener, just click Add Another Filter, as shown in Figure 16-1.)

Asset class

Choosing your asset class is the first search criteria, and of course in a book like this, the focus is stocks (equity). However, this category shows the range of choices that ETFs have to offer. There are ETFs that concentrate on bonds, currencies, precious metals, real estate, basic commodities, or “multi-asset” portfolios. There are also inverse ETFs, which have within their portfolio speculative derivatives such as put and call options (found in the asset category called “alternatives”).

Attributes

In the Attributes category in the ETF Database tool (refer to Figure 16-2), you can choose Active, Passive, or Any. ETFs, by and large, are passive, meaning that the portfolio isn’t actively managed like a typical mutual fund portfolio. However, in recent years some ETFs have become more active in their portfolios (meaning more active buying and selling of positions within the portfolio). If you aren’t sure, just click Any as your choice.

Issuer

Looking for an ETF that was issued by a financial institution such as iShares, State Street SPDR, or VanEck? If the issuer is an important consideration, check out the comprehensive list of financial firms that issue and sponsor ETFs.

Structure

Although you’re most likely looking for a conventional ETF, you can find other structures, such as a commodity pool or exchange-traded notes (ETNs). For most beginners, the standard ETFs are fine.

Expenses and dividends

In the Expenses & Dividend category in the ETF Database screener, you can perform your search using an expense ratio and/or a dividend yield. Maybe you want an ETF with a relatively low expense ratio — say, under 2 percent. You can then adjust your search with this criteria, and the search will exclude all ETFs with expense ratios higher than 2 percent.

As for the dividend yield (and you know I am a big fan of dividends if you read earlier chapters), you can adjust it based on your preference. Indicate that, for example, you want ETFs with a minimum yield of 2.5 percent, and the screener will exclude all ETFs with a reported dividend yield lower than that percentage.

Liquidity and inception

The typical criteria in the Liquidity & Inception Date category shown in Figure 16-2 are the following:

• Assets ($MM): This field measures the market capitalization of the ETF in case you want to make sure that you’re buying a large ETF versus a smaller ETF that has a lower market capitalization. For novice ETF investors, go for the higher market capitalization (larger asset size).
• Average Daily Volume: This field refers to how many shares of a particular ETF are traded in the market on a typical trading day. Novice ETF investors want a higher trading volume, which indicates greater liquidity and hence is easier to buy and/or sell.
• Share Price: Here you indicate whether you have a limit as to share price. For example, if you can afford ETFs only at $50 per share or lower, use that criteria. Easy!
• Inception Date: Here you put in the criteria, if you wish, regarding how long an ETF has been around. All things being equal, an ETF around for 15 years or longer is a safer investing vehicle to choose than one that started just last year.

Returns

Looking for ETFs based on how well they have performed over a year or longer? Then the Returns search criteria shown in Figure 16-2 is for you. You can designate a time frame such as year to date or a longer one such as one year, three years, or five years.

I take seriously the admonition that “past performance is not necessarily indicative of future results,” but check out the returns since they help confirm that an ETF’s portfolio is a good consideration. After all, all things being equal and you’re choosing between one ETF that went up 87 percent in the past three years and another ETF that dropped 12 percent in the same time frame, your choice should be a no-brainer (Put away that coin! No heads or tails here).

ESG scores

Are social or other nonfinancial considerations important to you? Perhaps you’re worried about the environmental effects of corporate activity. Maybe moral considerations are important because you want to invest in companies that are “good citizens” or that do not exhibit practices you disagree with. Given that, the ESG Scores category in Figure 16-2 will be a prime consideration in your search criteria.

In the ETF Database screener, there is a single composite ESG score ranging from 0 to 10, with 10 being the most favorable — the higher, the better.

Fund flows

The Fund Flows metric in the ETF Database screener tracks how much money is flowing into an ETF over a given period such as one week, one year, or five years. Fund flow essentially means that when you tally money coming into and out of various financial assets, you can gauge the popularity (or unpopularity) of a given asset. If there is a net inflow of money for a given asset, then ETFs with that asset are in a bullish position (and that’s a good thing for your ETF’s share price).

Risk

The Risk Metrics category in Figure 16-2 touches on volatility and beta characteristics of a particular ETF. It also includes the price-to-earnings (P/E) ratio if available. You can find out whether an ETF has lower or higher volatility (compared to the total market).

Higher volatility means ultimately greater risk. A tech stock ETF, for example, has higher volatility than a utilities stock ETF. ETFs with portfolios that have a higher P/E ratio can be riskier than those with a lower P/E ratio. The bottom line is that if you’re concerned about risk, select search criteria with low P/E ratio and low volatility. Flip to Chapter 4 for more about risk.

Holdings

Holdings criteria cover what asset(s) are in an ETF. Does the ETF have one asset or 50? In addition, this category covers how balanced and deep an ETF is relative to its peer group. In other words, is this ETF’s holdings in the top 10 percent, 15 percent, or 50 percent of their peers in the category?

Themes

You can see the top ETFs in terms of popular themes in the final category in Figure 16-2. At the time of writing, the most popular themes are artificial intelligence, blockchain, marijuana, and FAANG (referring to Facebook, Apple, Amazon, Netflix, and Google).

The problem here is that what is popular today may not do well next year, so novice investors should focus on long-term profitability and the fundamentals for more assured success over time.