The Importance of Stock Screeners in Investing and Trading

Despite increasing concerns about rising inflation at the beginning of 2023, the stock market rallied from the 2022 lows to near its all-time highs within a few months.

Investors identified the stock market as a good vehicle to compensate for the impact of inflation, which greatly worked.

Yet, while overall market indices like SPY and QQQ greatly performed, not every stock market sector or individual stock did the same.

A stock screener contains two major parts. The first part is the universe of financial assets like stocks and ETFs.

Some screeners focus on global markets like the U.S. stock market, and some offer a broader universe of stocks with globally listed companies in the U.S., Asia or even worldwide.

As an investor looking to buy stocks listed on U.S. markets, you want to ensure focusing on a screener covering a wide range of stocks listed on stock exchanges such as the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) or National Association of Securities Dealers Automated Quotations (NASDAQ).

In contrast, if your core focus is investing in stocks listed on European stock exchanges, you consider XETRA or DAX40-listed stocks and scanners that provide market data and screening functionalities for those markets.

The second part is the technically more demanding part - the filters. The screener is only as powerful as its filters.

Exemplary filters are the size of the company based on market capitalization, the profitability of a company based on earnings, and the relative performance of a stock based on its gains relative to the average market or compared to its peers.

With a filter, you can reduce the broad universe of stocks to a more granular selection. The U.S. markets, for example, have about 8,800 listed stocks on major exchanges.

Now, you apply a market capitalization filter to scan for large-cap stocks (by definition, companies with a market cap above $10 billion). This filter alone reduces the 8,800 stocks to about 700.

These results could now be further filtered by sectors (basic materials, communication services, healthcare or technology). If you choose technology, the list of 700 stocks reduces to about 100.

That's where the power of screeners lies. Every investor can filter for those stocks he wants to focus on, be it large market cap stocks in the technology sector in the U.S., penny stocks in Canada, or ETFs in Europe.

If a stock performs exceptionally well compared to the broad market or stock indices, the company likely does many things better than the average.

Anticipating such trends is a focus of many investors by following the idea and concept of investing in things that perform well right now instead of investing in laggards hoping for some turnaround later.

Once you have filtered for specific stocks, you can now also use a screener to sort based on certain criteria such as performance figures, trading volume, ownership statistics or company financials.

Performance Figures: A stock screener lets you sort stocks by performance per week, month, quarter, or since the beginning of the year (YTD).

Trading Volume: Trading volume indicates how many shares have been traded, while the relative volume compares today's trading volume relative to the average of the previous month's average.

Company Financials: Reading all earnings transcripts of every company and calculating relevant ratios takes days, weeks or even months of your time. A quick look at the company financials lets you identify the return on investment and profit margins.

Stock screeners are powerful tools that help investors find the right stocks to invest in quickly and more comfortably. It is a big time saver, but also a task that is easy and efficient to complete and repeat.