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Where do you get your investment ideas? With thousands of stocks out there, weeding out the noise can be a time consuming process.

That's where stock screeners come in. Here's everything you need to know to score gains with stock screeners.

Screener Basics

Essentially, stock screeners are programs that look through a list of stocks and find the investments that meet your criteria. If you're looking for small-cap investments, for example, you could tell your screener to only show you stocks with market caps of $2 billion or less.

Inside the screener is a database of stock metrics, such as like the P/E of


(IBM) - Get International Business Machines Corporation Report

(it's 9.76, in case you were wondering) or

General Electric

(GE) - Get General Electric Company Report

's net income last year ($4.3 billion). When you input criteria, or "screens," the program uses its database of metrics to decide what to show you and what to skip over.

Stock screeners may sound like a high-priced investment tool, but they're not. In fact, there are a ton of free stock screeners on the internet that do a terrific job of sifting through investment options.

Google Finance

has one,

Yahoo! Finance

has one, so does

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, and, of course,

has a free stock screener, too.

Free isn't the only way to go for stock screeners, and there are scores of premium stock screeners out there that offer expanded features for a monthly fee. The question is whether or not it's worth shelling out the cash for a premium screener when there are so many freebies available online.

The short answer is no; while many people (including me) pay for premium services that offer nice features such as backtesting and screen flexibility, a free screener should be more than enough to help you get your feet wet with screening stocks. In fact, I'll show you how to run a free screen in a minute.

What to Screen For

Unfortunately, "stocks that will make money" isn't a choice in any of the screeners I've ever seen. That's why, when you're screening for your next investment, you have to have a pretty clear picture of what you're looking for. Even if you're open to lots of different investment options, that's not as daunting of a task as it may seem.

Picking your screening criteria can be as much an art as it is a science, but here are some basic starting points if you're trying to screen for these kinds of stocks.

If you're a value investor, you might want to look for low price-to-book and price-to-earnings ratios, positive earnings estimates and positive free cash flows. Growth investors might want to screen for historically growing earnings and revenues, a low PEG ratio, positive ROE and positive analyst growth estimates. And if you're interested in GARP, or growth at a reasonable price, a combination of these metrics might be a good idea.

There's really no hard and fast rule for what you should be screening for or what thresholds you should allow. Trial and error is a big part of the learning curve when it comes to screening stocks. But that doesn't mean you're on your own. Many screeners offer predefined screens for their users (check out Yahoo!'s list of predefined screens


). These predefined screens are a pretty good starting point for anyone who's not sure what to look for alone.

Getting Your Hands Dirty With a Sample Screen

Let's say I'm looking for a small-cap value stock in Google's free stock screener. How would I go about doing that? Well, here's a look at the criteria I used in my quick-and-dirty screen:

Market Cap: I wanted to keep my search relegated to true small-caps, so I chose to ignore anything worth more than $1 billion.

P/E Ratio: To avoid stocks trading for high earnings multiples, I stipulated a pretty low P/E ceiling of 5. As you can see from the "Company Distribution," most stocks have P/Es around 11.

Price-to-Book: I'm after value, so a price-to-book ratio of less than 1 means that the company is trading for less than the value of its assets. (For more on book value, check out "

Value Stock-Picking with Book Value


Net Profit Margin: Right now, I'm only interested in profitable stocks, so I screened out anything that posted a net loss last year.

Total Debt/Assets: A measure of balance sheet health, this gives investors a glimpse at a stock's debt load and financing structure; a value below 1 means that the company has more assets than debt on its books.

The end result of the screen: 60 names of potential small-cap value plays. The next step, of course, is looking into the names my screens generated and finding a play or two that has potential right now. (For more on how to analyze stocks, check out "

Getting Started: Fundamental Analysis


Screening Shortcomings

As great as screens may be, there are some shortcomings to keep in mind when you're screening for stocks. For starters, screeners are machines. They lack the ability to measure any of the qualitative aspects of a stock (like a new product line or renegotiated loan terms). That's why delving into analyzing your potential plays is so important after you run your screens.

Another gripe about screens is the technical limitations they impose upon us. With most programs, the screening metrics are preset and can't be determined. So while screening for P/E or net income can be done easily, looking for stocks whose working capital is greater than its current quarter financial obligations is a real technical challenge. Some premium screeners do offer more customization than freebies, but I'm still looking for that holy grail of stock screeners.

One of the most important limitations of stock screeners is the freshness of the data they provide. A screener can be the most robust program in the world, but if the data they provide are out of date, the results are worthless. Most big screeners are good about staying current, but make sure you read the fine print on the screener's Web site to see what kind of delays or outdating you might have to factor in.

Despite their shortcomings, screens are one of the best ways to weed out the bad investments from the good. Want an endless supply of investment ideas? Playing around with stock screeners might just be your answer.

Jonas Elmerraji is the founder and publisher of, an online business magazine for young investors.