Screening for Investment Gold

Thanks to new online software, you can tailor your stock portfolio like the pros

and aids for individual investors come in two varieties: beginning and advanced. The same holds true for screens on the Net. If you’re just getting the knack of how stocks are valued and how the market works, the fact that the online sites provide hand-holding is good news. Be forewarned, however: At the very least, you’ll need to know the basics.

A crash course includes learning about P/Es, derived by dividing a stock’s price by its profits (earnings per share). Investors use these numbers to compare one share’s value to another’s. Then there are earnings growth rates, which amount to educated guesses about how quickly a company is growing profits annually. It’s also good to have a grasp of dividends (profits a company regularly distributes to shareholders quarterly) and yields (a stock’s dividend divided by its current share price). Past that, many screens delve into more detailed measures, including price-to-book ratios (a stock’s share price divided by the value of its hard and fast assets) or return on equity, a measure of how company management uses its cash resources from shareholders.

If all of this makes you more than a little queasy, bone up with a good manual on the stock market and how stocks work (such as The Neatest Little Guide to Stock Market Investing by Jason Kelly, Plume, $12.95). And by just experimenting with a stock screen, you’ll be able to quickly learn and assimilate the same concepts used by pros at the big investing firms.

It all starts with a database. No matter how large or small, stock screens work with large pools of information. They include a library of company names and the one- to five-letter ticker symbols that professionals use to identify stocks (INTC for Intel or KM for Kmart). Screens are also loaded with a slew of company-specific facts and figures. There are earnings growth rates, for one, to point out how quickly the CEO of a given organization is conquering the world. P/Es indicate whether shares are cheap or expensive relative to the market or even a specific industry.

But a screen is only as good as the facts and figures it’s accessing. Often stock screens tap into companies that poll industry analysts at the big Wall Street brokerage firms such as Merrill Lynch and Salomon Smith Barney. Firms like I/B/E/S, Zacks and First Call, to name a few of the most reputable, then combine numbers, tabulate averages and provide what are called “consensus” figures, or averages of what Wall Street projects for a firm. A good screening program will serve up those kinds of numbers for your efforts.

Remember, too, that fresh data ensures your screen will be up-to-date, since things on Wall Street have a way of changing overnight. For instance, Acme Rocket Corp. might release news to the press that its marvel of a booster engine didn’t make as much money during the last quarter as expected. Almost automatically, analysts will sharpen their pencils, rush headlong through their books and lower their

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