Screening Your Next Penny Stock Winner
[Editor's Note: Today, I want to introduce you to the newest member of the Penny Sleuth team, Associate Editor Jessica Comitto. Starting this week, she'll be showing you the tips and tricks to building a profitable stock screen. With that, here's Jessica...]
Before the Internet allowed investors access to manage their own portfolios, most investors large and small relied on their brokers to supply them with the best investment ideas.
Researching and narrowing down a list of potential investments could take days, or even weeks.
Now with only a few clicks, online stock screeners allow even the least experienced investors to quickly narrow down stocks based on a wide variety criteria. If used correctly, stock screeners can be the best way to find quality stocks for your portfolio.
However, if you want to use a stock screener affectively, you need to know how to ask for the right stocks. Understanding what all the different metrics mean and how they are used to filter out a list of stocks that meet your criteria can be overwhelming.
In this weekly series, I will show you how to build a stock screen to find your successful small-cap play.
First, lets get started by checking out a where you can go to set up your ideal stock screener:
- Morningstar: Morning Star offers a selection of research and screeners.
- Portfolio123: Portfolio123 allows for more complex screens.
- FinViz.com: FinViz.com allows investors to visually see stocks based on there chart patterns.
- Google Finance: Google Finance allows investors to select screening criteria in relation to other companies.
- Zachs Stock Screener: Zachs Stock Screener allows investors to get professionally designed screens as well as design their own.
To start, here’s how you narrow down the vast number of companies that are publicly traded.
The first two stock screening metrics I want to introduce you to are share price and market capitalization.
Share price is pretty simple. And as I am sure you already figured out… it is the price it would cost you to buy one share of stock in a particular company.
Market capitalization, or market cap, is the total dollar value of all the company’s outstanding shares. This is used by investors to determine the size of a company.
Since I will be focusing on building a stock screen of penny stocks to watch, setting up these first two metrics will narrow down the stock pool to small-cap companies.
Go ahead and set up your share price for $15.00 or less. Limiting your share price to under $15.00 will weed out higher-priced stocks.
Set up your market capitalization with a $300 million minimum and $2 billion maximum. Setting a $300 million minimum you filter out companies that may be so small they create unnecessary risk. The $2 billion maximum will remove medium and large-cap stocks.
Now you should be left with almost 750 of small-cap companies — and that doesn’t even include stocks on the Over the Counter (OTC) market.
These two metrics will build the base for our future screens. I will be back next week to show you the next step to narrowing down your list of small-cap stocks. For now, go ahead and set up your free stock screening account and get comfortable with the criteria selections.
January 28, 2011
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