How to use them and examples
- A stock filter is a research tool that helps investors sift through and find stocks that meet certain requirements they set for themselves.
- Stock filters allow investors to search and find stocks based on market cap, P / E ratio and more.
- Not all stock filters are the same and some require payment for more advanced features.
- Visit Insider’s Investment Reference Library for more stories.
What you choose to invest in ultimately determines your overall returns in the stock market and can be the difference between gains and losses. It is therefore essential to have the necessary tools to both find and analyze the different stock options available to you.
But with nearly 8,000 different stocks to choose from between the New York Stock Exchange and the Nasdaq, how can investors quickly identify stocks that have the potential for growth without being overwhelmed by the sheer number of options? This is where a stock filter can become a very useful tool.
What is a stock filter?
A stock filter is a research tool that allows an investor to find and sort stocks that meet the criteria sought by the investor. In other words, an equity filter is to an investor what Google is to the Internet.
âFilters are great for narrowing down your list of potential stocks to invest in,â says Joseph Hogue, CFA, former venture capital analyst and blogger at My stock market bases. “There are over 3,000 stocks traded on the NYSE alone, so this helps narrow the list by filtering out those that might not be a good investment.”
Many stock filters are free for the most basic features and may include a paid option for more advanced features. Some of the more popular stock filters are freelance websites, but some brokerages also include a stock filter feature.
How do stock filters work?
An action filter works by compiling a list of actions and starts filtering them as you include your selection criteria. Once you are done entering the characteristics you want, the remaining actions on the list are those that match your goals.
You can then use those remaining stocks to make investment decisions or continue your research to determine which of the remaining stocks will ultimately help you achieve your goals. Investors tend to use equity filters for different reasons. Some investors have a specific strategy that they like to follow. Equity control officers can help them save time and quickly identify which actions are best suited to that strategy.
For example, if you are an investor who wants to buy only dividend-paying stocks that are priced above $ 20 per share, a stock filter can quickly generate a list of suitable options to choose from. A filter can also help to further refine and search for companies in a certain sector of the market, such as financial services, energy, or hotels.
Stock filters can also help investors reduce some of the noise around a particular stock. This is because a reviewer looks for types of stocks and does not directly consider recent news or investor sentiment that can cloud a good investment decision.
But stock filters are not perfect. âThe biggest downside of inventory control officers is that they can’t tell you a stocks to invest in. Filters are great for narrowing your list down to a few handfuls that meet the criteria, but you’ll still have to do some research to find the best ones to buy, âHogue adds.
Stock filter example
Let’s walk through an example using Markets Insider’s free stock filter. Let’s say you are an investor looking for dividend paying stocks based in the United States. Dividends are payments made by a company to its shareholders.
First, start by selecting the country as “USA”. Next is the indices section – an index measures the performance of a group of individual stocks. For this example, we’ll use the S&P 500, which represents the 500 largest companies in the United States. If you follow you will see that these two selections have already narrowed the list to large companies in the United States after hitting blue look for button. But using other factors we can narrow down our list a bit more.
Using the “Dynamic search criteria” section, select dividend in the first drop-down menu then select dividend yield% for the second drop-down list, both for the year 2020. The dividend yield shows how much a company pays its shareholders in dividends relative to its share price. It is a ratio expressed as a percentage.
Generally, a dividend ratio of between 2% and 6% is considered good. For this example, in front of the
we will select more than 2% and hit the look for button again. You should see more than seven action pages that all match our criteria. (Keep in mind that your results may differ depending on the current market price.)
Let’s clarify a bit more: now, in the dividend row, enter greater than $ 5. This will provide a list of S&P 500 companies that pay a dividend greater than $ 5 with a split yield greater than 2%. With these selections, you should only see one page of results, which should be more manageable.
Which selection criteria are the best? It will depend on your individual goals and your investment strategy. Fundamental investors can research companies using the P / E ratio, earnings per share, and strong cash flow to determine which stocks to buy.
While technical investors are more focused on price action and may look for companies that are trading with a certain volume or its performance relative to a moving average. Whether you’re thinking more on the fundamental or technical side, a stock filter can always help you quickly identify a list of suitable stocks to invest in based on your selections.
The financial report
Action filters make it easy to keep thousands of actions based on your specific criteria. Before trying to find the perfect equity filter, it’s important to take a moment and define your goals and investment strategy. With a solid foundation on both of these, you can better assess what kind of features you might need for a filter.
But you shouldn’t blindly trust a stock filter. âEven if you narrow the list down to a few stocks, don’t blindly invest in each just because they meet a few criteria. Always spend a little more time researching the stock to make sure the company is a good one. investment, âsays Hogue.