In the first two editions of my stock book, I recommended Power Investor software. I also linked to it from various places on this site. The $99 price for such comprehensive research software was a bargain, in my view, and supported much of my stock research for years.
Not anymore.
Starting a few years ago, I began receiving complaints from readers who followed my advice to buy the software. The data set was old or incomplete. The calls to customer service weren’t answered. Emails went unreturned. Finally, the organization behind Power Investor looks to be folding, because the latest is that it’s no longer accepting new subscribers.
More than any of that, though, the reason I stopped recommending the software in the third edition of my stock book, due out later this year, is that it’s no longer necessary to pay for stock research databases. There are excellent, free ones available online that have become good enough to rival the paid versions. They are the ones I profile in the new edition of my stock book.
For my many readers coming here each day, however, the new information can’t wait. Below, free of charge, is the entire Stock Screeners section from the third edition of The Neatest Little Guide to Stock Market Investing:
Stock Screeners
Since the earlier editions of this book, it’s become easier and cheaper to find good stocks. As recently as a few years ago, stock databases came on CDs. You had to install the programs, then get data updates by downloading files from websites or receiving new CDs every month. The programs were expensive, too. Some cost more than $500 per year.
Free online stock screeners have changed the rules. Pros used to scoff at pared-down tools from places like Yahoo! Finance, and some still do. The thing is, free tools are no longer pared down. They do everything an individual investor needs them to do. Much as I’ve looked — and I’ve looked a lot — I can’t see any compelling reason to pay for stock software anymore.
All you want from a stock screener is quick, easy research that allows you to make your own best decisions. With that directive in mind, let’s look at three screeners.
Yahoo! Finance Stock Screener
This is what I use every day. It provides fast results that you can sort by any criterion. If you get too many companies, just add more criteria to whittle the list down, or make your parameters stricter.For instance, in March 2007 I was interested in companies that had a price-to-sales ratio (P/S) below 5, a price-to-earnings ratio (P/E) below 20, and projected earnings-per-share (EPS) growth in the year ahead of more than 25 percent. I typed those criteria into the screener, and received 184 results.
That was too many, so I increased the growth rate to 50 percent. That still left 68 companies. Next, I dropped the P/E to 10, and got a tidy list of 20 companies. I clicked the “Growth” criterion header in the results table twice to re-sort the list in descending order from highest growth rate to lowest. The whole process took less than two minutes.
The fastest grower was LaBranche & Company (LAB $7.50), a New York City broker-dealer. It had a P/S of 1.1, a P/E of 3.5, and projected one-year EPS growth of 950 percent. I clicked to its key statistics page and found that the company had a healthy 31 percent profit margin, was 12 percent insider-owned, and that its $7.50 price was its 52-week low. That was down about 58 percent from the almost $18 it had fetched in April 2006.
I was curious to know what had happened. I clicked to its news page and discovered that the firm used to make its money by offering floor trading services on the New York Stock Exchange. As the exchange became electronic over the years, few people needed floor traders anymore, so LaBranche’s earnings tumbled. Its market-making business was down 24 percent in the previous year. CEO Michael LaBranche said that his firm was slashing expenses and looking for ways to prosper in the new electronic marketplace.
Whether or not LaBranche succeeded (see for yourself by typing “LAB” into Yahoo! Finance and checking its current price) is not our concern here. What I want you to appreciate is how quickly I was able to find this potentially profitable recovery story using Yahoo! Finance Stock Screener, and how easy it was for me to conduct additional research with just a few mouse clicks.
The basic HTML screener is usually fine for me, but Yahoo! also offers a Java screener that’s fancier. It has a regular desktop software-like interface instead of a webpage interface, and offers more screening criteria. It, too, is free.
For $14 per month or $132 per year, Yahoo! offers an even more deluxe screener with real-time data. I don’t see why you would need that unless you’re
daytrading, which is stressful, costly, and ineffective. Why pay for tools that encourage that lifestyle?Stick with what’s fast, free, and very helpful.
Contact: screener.finance.yahoo.com/newscreener.html
Morningstar Stock Screener
Morningstar’s screener is another good alternative. It taps into the firm’s helpful analysis tools like its stock types, equity style box, and grading system.In March 2007, I screened for aggressive growth companies with “A” grades for growth, profitability, and financial health. That turned up 51 companies. I then clicked the “Score These Results” button and went to a score card where I could specify the importance of each criterion by clicking radio buttons between 1 and 10 beneath it.
The list of the top ten scoring stocks appeared to the right of the criteria and was updated on the fly as I clicked away. Consistently leading the list in this example were American Oriental Bioengineering (AOB $10) and Chico’s FAS (CHS $22).
Contact: screen.morningstar.com/StockSelector.html
MSN Money Screener and StockScouter
MSN Money’s screener takes a different approach. Its interface is simple with dropdown menus that keep searches focused on basic notions rather than specific data.For example, the choices for P/E are just “Any,” “As high as possible,” and “As low as possible.” The idea is that you probably don’t care specifically if the P/E is 9.7, but just that it’s low. The data set returned is usually small, but unfortunately it can’t be sorted. I find myself feeling that something is being missed with this screener. It’s just a little too basic, but could be handy for quick ideas.
A more useful tool to me is MSN Money’s StockScouter. It’s a rating system that assigns some 5,000 stocks a number from 1 to 10 on a bell curve, with 10 being the best potential for beating the market. In March 2007, there were 148 stocks rated 1, 670 rated 5, and 148 rated 10. I clicked on the group of 10-rated stocks, wondering as I did so why anybody would go anywhere else.
The group came up in a table with sortable column heads, and I could add columns to the table by checking boxes next to additional criteria. I sorted the table in descending order from highest to lowest expected six-month return. The top 42 stocks were projected to gain 15.17 percent in six months, and included Audible (ADBL $11), Freeport-McMoRan Copper & Gold (FCX $56), and Oceaneering International (OII $39).
Finally, MSN Money offers a deluxe screener via download. Personally, I prefer keeping everything online.
Contact: moneycentral.msn.com/investor
Best of luck with these free resources!
Don’t b
uy Power Investor or any other databases. Use these free ones.
