Google’s free stock screening tool can be used to find great stocks. No website can tell you the best stocks to buy right now, but you can learn how to discover gems for yourself.
Without the right tools, you would have to research company after company to find the best stocks to buy. That would be a lot of work! Luckily, you have Google’s Stock Screening Tool and these instructions on how to use it strategically.
A word of caution: the vast majority of investors will not be able to outperform the market over time. Be sure to only invest a small portion of your savings in stocks you select yourself. When investing, always consult an independent financial advisor. I strongly recommend purchasing a copy of this great book on investing strategy from the late wall-street executive Gordon Murray. For $10, you can download it instantly and quickly read it on your computer.
Step 1: Determine the Type of Stock You’re Looking For
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 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
The 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 short-term rough patch and amateur investors have panicked. Since 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 ideal stock 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.
Look through the 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
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