Today we will be teaching you how to use Google’s free Stock Screening Tool to create a manageable list of promising companies to look into.
Without the right tools, you would have to look through hundreds of stocks to find a few gems. That would be a lot of work! Luckily, you have Google’s Stock Screening Tool and these instructions on how to use it strategically.
Step 1: Know the Type of Stock You’re Looking For
This step can be the hardest. You are writing the ‘winning formula’ that describes stocks poised for big gains.
For instructional purposes, we will use a formula that works well for us as value investors.
As value investors, we love it when stocks lose value for irrational reasons. We are looking for strong companies whose prices have dropped below their true value because of fear mongering, bad assumptions, temporary conditions impacting business, unfavorable news coverage, or any type of silliness that we can seek to understand through research.
“Be fearful when others are greedy and greedy when others are fearful” – Warren Buffett
Our paragraph describing the type of company we’re looking for reads something like this:
“I want to find a company that is normally strong and very profitable. This company is experiencing a temporary rough patch and investors have panicked. Since its investors have lost a sound long-term perspective, the company is now under valued.”
Step 2: Translate Your Description into a Language Google’s Tool Understands
Identify the key parts of your description. For our example, the key points in the example are:
- The company is consistently very profitable under normal conditions.
- The stock price has lost a lot of value.
Next, look through Google Stock Screener’s filtering options and choose the criteria that best translate your key points. If you don’t understand a term or option, take the two or three minutes to learn it.
After looking through the filtering options, we have found two criteria that can be used to translate the key parts of our formula.
- profitable under normal conditions = Return on assets (5yr avg) (%)
- stock price lost a lot of value = 13w price change (%)
We have set the 13w price change (%) to show us companies that have lost more than twenty-five percent of their value over the past 13 weeks. Return on assets (5yr avg) (%) has been set to only show companies that have made at least a 10% return on assets over the past 5 years.
With these settings, Google has provided us with a list of 30 companies to look into.
Step 3: Make a Spreadsheet to Compare Key Metrics and Info
Create a spreadsheet with columns for key comparison metrics, such as:
- 1 year Price to Earnings ratio
- 5 year Price to Earnings ratio
- 13 week price change (%)
- The industry the company is in
- Goods or services the company sells
- Your believed reason for the stock price’s decline
Step 4: Learn More About the Promising Companies in Your Spreadsheet
Return to Investment Strategy 101 to learn more on how to evaluate good stocks to buy.
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