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(David Silverman/2008 Getty Images)
(David Silverman/2008 Getty Images)

Investor Education

Free online tools to separate the wheat from the chaff Add to ...

Looking to add stocks to your portfolio? Free online screeners might help.

Just plug in your selection criteria and the software dips into a giant database to find stocks fitting the desired metrics.

Screeners thus allow investors to focus their research on a more manageable list of companies that have traits associated with good returns. Examples of such traits are low valuation, high return on equity, and breakouts in stock prices.

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So which of the free online stock screeners are worth using? One can be crossed off the list right away. The MSN Deluxe Stock Screener was discontinued on Nov. 1, 2009. That's a pity - it was generally recognized as the best.

Also unfortunate is the dearth of good screeners for Canadian stocks.

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"Regrettably the situation remains poor on the Canadian front " says Norm Rothery, chief investment strategist at Dan Hallett and Associates Inc. and a regular user of stock screeners.

Free screeners in Canada mainly suffer from two problems, he says. First, most include only a few search options. So, while it's easy to screen for low-P/E stocks, it's harder to find a screener for low P/S stocks. Secondly, the screens don't allow for much customization. For instance, you might only be able to screen for the lowest P/E stocks instead of for stocks between P/E ratio of your choosing.

Globeinvestor.com is the best of the lot, Mr. Rothery says. The main selection criteria offered by the globeinvestor.com screener are: price-earnings ratio, price-book-value ratio, dividend yield, and three-year percentage growth in profit and revenue. A nice feature is the ability to output lists of different types of securities, such as warrants, preferred shares, ADRs and exchange-traded funds.

Which stock screener is right for you depends on your investment approach and particular needs. Even at that, you may be better off using several in combination, rather than just one.

"I also like to crosscheck the results [with other sources]for data problems," says Mr. Rothery. And screeners are just a first step in the research process.

For U.S. stocks, better screeners are available. The first two below received relatively good reviews from three sources: Mr. Rothery, Mike Hogan (The Electronic Investor columnist for Barron's) and Jacky Pandion (publisher of a stock-screening website at http://www.mechanical-investing.com). The others following them received honourable mentions.

1. Yahoo Finance Stock Screener

This product is preferred by Mr. Hogan and Mr. Pandion. "Yahoo's new Java screener is the most robust, letting you sort companies by some combination of about 150 metrics," noted Mr. Hogan.

Interesting metrics include the price-earnings-divided-by-growth-rate (PEG) ratio, return on equity, analysts' estimates of company earnings, percentage of shares held by insiders (and institutions), and price-change data useful to day traders. The "relative strength" criterion was missing, Mr. Pandion pointed out.

Mr. Rothery mentioned data issues. "Data maintenance appears to be a problem because it now fails on debt/equity ratios. Individual stock profiles are similarly afflicted."

2. Google Stock Screener

Google's product appeared to be Mr. Rothery's favourite. Metrics include valuation ratios, return on equity, relative strength, earnings-per-share growth, and percentage of shares held by institutions. All three judges praised the unique feature that graphically shows how companies are distributed about the mean of each criterion.

Mr. Hogan says Google's greatest shortcoming is its inability to export search results to a spreadsheet. That function, which is available on Yahoo's screener, is useful for keeping a record of findings, and doing further analyses.

3. Zacks Custom Screener

This one can search by broker ratings, earnings surprises, earnings revisions and quarter-on-quarter earnings growth - good for momentum investors (but no relative strength variable).

4. iStockAnalyst Screener and StockCharts Scans

These offer predefined technical screens free to registrants, making it one of the best for technical analysts. And it includes Canadian stocks.

5. Morningstar Screener

Users can select by Morningstar's stock ratings and re-rank lists of outputted stocks.

6. Motley Fool CAPS

This site can screen by the favourite stocks of the Motley Fool CAPS community and then drill down on various metrics.

7. NASDAQ's Guru Stock Screener

An easy-to-use set of predefined screens identify stocks satisfying the criteria of one or more great investors.

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