We’ll be the first to admit that selecting good stocks isn’t easy. The sheer volume of companies makes zeroing in on a good stock difficult, and the huge amount of data on the web doesn’t make things any easier; it’s hard to sort out the useful information from the worthless data. Fortunately, a stock screener can help you focus on the stocks that meet your standards and suit your strategy. Here we look at what a stock screener is and how it can work for you.

Stock Screening Basics

Stock screening is the process of searching for companies that meet certain financial criteria. A stock screener has three components: a database of companies, a set of variables and a screening engine that finds the companies that satisfy those variables and generates a list of matches.

Using a screener is quite easy. First you answer a series of questions such as the following:

• Do you like large-cap or small-cap stocks?

The good screeners will allow you to search using just about any metric or criterion you wish. When you finish inputting your answers, you get a list of stocks that meet your requirements.

By focusing on the measurable factors affecting a stock’s price, stock screeners help their users perform quantitative analysis. In other words, screening focuses on tangible variables such as market capitalization, revenue, volatility and profit margins, as well as performance ratios such as the P/E ratio or debt-to-equity ratio. For obvious reasons, you cannot use a screener to search for a company that makes, say, the best products.

Customizable Screeners

Three of the best free screeners on the web include those offered by Yahoo! Finance, MSN Money and FinViz. All three have basic screeners and advanced screeners.

The basic screeners have a predetermined set of variables whose values you set as your criteria. For example, one of the variables on the FinViz basic screener filters stocks by market cap, giving you the option of finding companies that, for example, exceed or fall below $300 million in market capitalization.

Although there are some good free screeners out there, if you want the very latest and the very best technology you will likely have to break down and get a subscription to a screening service.

Example Screen on FinViz

To demonstrate how screeners work, let’s look at an example using FinViz’s free screener. Let’s say we are looking for an apparel company that trades on the NYSE, has a P/E ratio under 25, has an EPS growth of over 10% over the last five years and a debt/equity ratio over 0.1. Before the age of computers, searching for companies to meet these criteria would have been a massive undertaking — it could have taken days. With a screener, it’s easy.

Here is what the screener looks like on FinViz: