It's only numbers!


How do you pick a stock? Many investors get their ideas from family members or friends. Others rely on "hot tips". Some listen to a television guru. Then there is the good old gut feeling. These are all good places to start but it's not scientific enough. You didn't do any homework. You might as well just throw darts at the Wall Street Journal.

How do you do your homework? I rely on stock screens to generate and help me review different investment ideas. There are many free Internet tools that you can use to make a more scientific educated guess. Remember - it all boils down to numbers, so use the numbers to put you into stocks at the right time.

Screens allow you to sift through data quickly to find stocks that fit your specific criteria. It will weed out anything that isn't in your criteria. When you screen, you discipline yourself anD make better investing decisions.

What criteria do you choose? Criteria varies from one person to the other. Some factors are age, current portfolio mix, retirement income, growth , dividends, etc. It's easy to get overwhelmed with different valuation measurements so evaluate yourself and decide what you want your portfolio to do for you. Start by looking at the stocks you own, if any. Are you happy with your investments? Do they fit into your criteria? Are they priced at P/Es (price-to-earnings ratio) below their industry? Do they pay dividends? Some screens that are available on most sites:

Filters I also use. I also like to screen for companies that are well known. Other criteria you can use to further filter are:

Strategies I use.When I screen I look for low P/Es (5 - 15), Return on equity (5 - 15%), Dividends (3 - 9%), High profit margin, Limited debt, Strong free cash flow. Vary the numbers and you receive different results.

Some Market Valuation Benchmarks.
Average S&P 500 since 1960
P/E Ratio 16.0x
Dividend yield 3.3%
Price/Book 2.8x
Price/Cash Flow 9.7x
Price/Sales .9x
Treasury Bond Yield 7.4%
Treasury Bill Yield 6.1%
Inflation (CPI) 4.4%

Where can you screen? Some of the free financial Web sites are:
OK, so you succeeded in doing your screen, and you made your choice and are ready to put your money on the table. Not so fast, screening is only the first step. Sometimes the numbers are painting a pretty picture that isn't up to date. Seek out research on the internet, your brokerage house or your library. Also check fundamental reports. Annual reports will give you excellent fundamentals. (I never said this was going to be easy.) Some fundamental sites:
Where can you track your portfolio? Create a list of stocks from your screens. Save the list to view at a later time. You can also export them to other sites that can track them for you. Three portfolio tracker sites that I use are: