32. How to use a stock screener Video Lecture | Become an Expert: Value Investing - Business Basics

welcome to course three unit five slash
lesson five using a stock screener okay
in this lesson we're just going to be
going over something that's really basic
easy to use not all that complicated and
what it is is it's called a stock
screener I prefer the Google stock
screener over pretty much anything else
out there so that's what we're going to
use for this lesson so if you just go to
Google and you type in a Google stock
screener and you hit enter it should
come up as the very first item and if
you go ahead and click on that it'll
take you right here to this stock
screener that Google has available okay
now what you the the purpose of this
stock screener is you're able to change
the criteria so like this very first
criteria is the market cap so this is
the size of the equity of the business
as you slide this bar to the right or to
the or the other one to the left okay
what you're doing is you're changing the
criteria of companies that fit into that
specific criteria and so we can add more
criteria here and then we can narrow
down to get exactly the type of
companies that we're looking for based
off of their financial terms and ratios
so whenever I look at this these are the
numbers that I typically look for and
I'll give you reasons why as we go
through this but as far as market cap
I'm pretty confident that anything over
about a hundred million is something
that is a company that's going to be a
little bit more stable and to be honest
with you and at a hundred million that's
still considered a small cap company
so our next criteria that we can adjust
here and as you can see we're down to
one thousand eight hundred and thirty
six companies that are currently in our
criteria here okay so as we adjust this
the price to earnings ratio and as you
remember we want that to be below
fifteen now something neat about the
Google stock screener is they show you
the average of all the different
companies in there and how many fit at
those current ratios so you can see how
the little chart Peaks out right at
about 15 on the p/e ratio which is kind
of ironic because that's that's what
we're trying to find any
thing under that 15 mark okay so we put
15 in there and anything underneath of
that now whenever the p/e ratio would be
zero or below that's going to be a
really bad thing because that typically
means that the earnings are negative and
that's what we really want to stay away
from is any type of company that's going
to have negative earnings so this number
here I'd probably change this to about
four or five that's up to you how you
want to put that in there but we'll
leave it in it for for right now okay so
the dividend yield and as you look here
how many companies we've narrowed it
down to just off of those two criteria
we're already down the 837 picks that
meet that criteria okay so the dividend
yield on the dividend yield for the
current market condition about 7% is is
about the only thing that you're going
to get this realistic now back in
2008-2009 whenever the market crashed
out I had this dividend yield clear up
to 12 14% and the reason that I had it
so high is because all the prices of all
the stocks were so low and if you
remember how we calculated the dividend
yield it's nothing more than taking your
dividend rate and dividing it by the
market price so since that market price
was so low I was expecting a higher
dividend and I was expecting the company
to be able to actually sustain that
dividend payment so back then you were
able to really get some great pics with
some incredible yields that were
sustainable but now based off of where
the markets at you're going to be lucky
if you can find anything even close to
7% and that's a sustainable number so
we'll just put that in to see what
happens and then the dividend yield on
the low end I typically like to see
something that's at least a 2% dividend
so I'll put that in as my low criteria
and you can see that it now narrowed our
companies down to 457 companies ok this
52 week price change I really don't care
about so I'm just going to delete that
and get it off the board now what I can
do is I can add more criteria so let me
click on this tab here and you can see
they have it broken down into all these
different criteria so
there's one that I like which is the
price-to-book so I'll go ahead and click
on that and I'm going to add that
criteria now the reason I like the price
the book is because that tells me my
margin of safety if you remember we're
trying to find a price the book that is
below a 1.5 ok so we'll move the slider
down and you can type in the exact
number that you might want right there
ok so I put 1.5 in is my top criteria
and as far as the bottom criteria I'm
going to I'm going to just put in point
6 okay and you can put whatever in
whatever you want in there to see what
you kind of come up with with your
different picks but I know that if a
company is trading for a price to book
lower than 0.6 it's probably not going
to be a good pick it's probably going to
be trading down there for a reason
okay so as we go to our next criteria
let's just see what we got here so we'll
click on the price tab okay and the
reason I'm not going to click on this
this EPS is because I'm already kind of
filtering that in here with the p/e
ratio because if you remember the p/e
ratio is nothing more than your price
divided by your earnings and to filter
results just off of the EPS you could
have a company that doesn't have a lot
of shares and so the EPS would be really
high or you could have a company that
has a lot of shares and so the EPS is
going to be lower so that's not
something that you can relatively
measure like if a company has a EPS of 5
it might be just as valuable as a
company that has an EPS of 1 so that's
why I don't really particularly care for
putting the EPS in there I would much
rather use the p/e ratio because I'm
comparing it to the price so all these
other ones I'm not really interested in
those as I go to the valuation tab we
already got the p/e ratio in there if
you wanted to you could put the forward
p/e in there but that's a I'm not a big
fan of that because I'm not really sure
which price they're going to be using
when they compare it to the future
earnings so I just use the current PE
and then I look at the estimates for
future earnings after I kind of sort out
which companies I'm particularly looking
at so as we get onto the dividend you
can see that there's some more different
dividend metrics that we could put in
here
I'm just going to stick with the current
one that we have in there which is the
dividend yield percent as we go to the
financial ratios now this is one that I
particularly like I like to look at the
total debt compared to the equity for
the most recent quarter so that's this
bottom one okay and we'll go ahead and
click I will go ahead and click on that
okay so for the total debt to equity for
the most recent quarter we are I'm going
to put in here anything under a 1.0 now
whenever we were figuring out the debt
to equity ratio before we weren't using
the total debt we were using maybe just
long term or some other different
metrics so there's a bunch of different
ways to measure the debt to the equity
but for me I'm going to use the total
debt to the equity and because of that
the max is going to be a little bit
higher than the point 5 that you're
going to typically pull off of one of
them top level pages because they're not
using the total debt they're using just
anything that's actually listed as debt
off of the balance sheet which I showed
you in the previous lesson so we're
going to put 1.0 and if it goes down to
zero that's wonderful because that means
the company has zero debt okay so the
other metric I like on here which I kind
of skipped over is the current ratio so
this is one of my favorite ones we'll go
ahead and put that in there okay and for
the current ratio if you remember if we
have a current ratio of 1 that means
we're going to have just as many current
assets coming in as current liabilities
flowing out in the next 12 months so for
this number we're looking for something
that's going to be over a 1.5 anything
over 1.5 is going to be great because
that means we're going to have a lot
more money flowing in that's actually
then what's flowing out okay so we put
that criteria on now as you can see as
I'm going down through these criteria I
only have 12 companies right now that
are meeting the specs that I've put in
okay now let's say that you're putting
in some really stringent spec
specifications here and you have zero
stocks that are showing up so what
you're going to have to do is you're
going to come up here and you're going
to have to adjust some of the
and be a little bit more lenient on your
criteria
now as the market continues to improve
and the market starts to climb and
people were valuing a lot of these
stocks maybe a lot higher than what
they're actually worth these criteria
are going to have to open up and you're
going to have to to have a larger spread
in order to start getting something
that's within the zone that you're
looking for now if you just experienced
a major crash you could have all these
criteria really tight to exactly what
you're looking for and you're probably
still going to be able to find companies
in there which is great and that's
that's one of the most important times
to be using it is during one of those
kind of scenarios so okay back to what
we were doing here so let's go to the
next tab here some operating metrics and
as you know I'm a huge fan of return on
equity and so return on equity five-year
average that's something I would really
like to see okay because that's going to
show me a company that has consistently
been able to reinvest their money and
they've been able to do it over a long
period of time so that's something that
we're looking for here so let's go ahead
and put in about seven percent 5%
anything anything about 5% is going to
be something that I'd be interested in
seeing that 7% would be awesome anything
above 7% so we're going to put that in
okay and now we're down to six companies
okay and then what I also I'm going to
do is I'm going to put in the return on
equity for the most recent quarter so
we'll also put that in at seven at 7%
okay and when we put that in we still
have six companies left as far as the
other metrics on here they're not
metrics that I'm really particularly
interested in to get just the general
overview of what companies out there
meet my specs that I'm looking for and
so when we look at this list you can see
that we have you know six different
symbols that we could then look up so if
you want to look up AVX you could then
dig into that company a whole lot more I
would never ever invest anything based
off of just pulling some symbols off of
a stock screener
this is a tool that's just going to get
you in the ballpark it's going to be
something that provides you some useful
information as to where to start looking
so I hope this was informative there's
other metrics in here that you can play
around with some of these might mean
more to you than what they mean to me
and I highly encourage you to kind of
develop your own strategy but this is
something that I would use as a starting
point the ones that I showed you and
from there you can take it and just run
with it so I look forward to seeing you
guys in the next lesson and I really
appreciate your support