03/2020 KIPLINGER’S PERSONAL FINANCE 61IST
OC
KP
HO
TO
.CO
M
like a measure—a P/E, say—to be within
a certain range or above or below aver-
age compared with peers. The more
filters you select, the more the pool
of stocks that meet the desired criteria
shrinks, effectively leaving you with a
short list of potential buys.
Most brokers’ screens offer more
than 100 criteria for winnowing your
selections. According to our most
recent online broker rankings (“We
Rank the Online Brokers,” Oct.), Fidel-
ity had 149 criteria, the most of any
major brokerage. But you needn’t tick
every box. Rather, investors should
think about what they’re looking for
in a stock and choose a handful of
relevant characteristics, says Charles
Rotblut, vice president of the Ameri-
can Association of Individual Inves-
tors, an investor education group.
Those seeking income from theirinvestments, for instance, might screen
for stocks with consistent dividends,
high yields, a healthy dividend growth
rate and a relatively low payout ratio
(the percentage of earnings paid out
in dividends). If building a screen from
scratch sounds daunting, get started
with a preset screen that you find ap-
pealing. Virtually every broker offers
preset screens; among E*Trade’s are
“Aggressive Small Cap” and “Inexpen-
sive Growth Stocks.” From there, begin
layering on characteristics or eliminat-
ing criteria to suit your needs.Do your homework. Once you’ve run a
screen, don’t mistake your short list
for a buy list. Now is when the real
work begins. Go to each stock’s page
and examine the fundamentals behind
the business by poring over the com-
pany’s income statement, balancesheet and cash-f low statement. Check
the income statement for consistently
growing sales and profits, for instance,
and the balance sheet for whether debt
levels are rising or falling.
Your brokerage may have something
like an “Overview” or “Key Ratios”
page, on which you’ll find key metrics
such as the debt-to-equity ratio (the
lower, the better) and return on in-
vested capital (you want it to be high
and consistent relative to peers). The
sites may provide comparisons to aver-
ages among peer firms—Merrill’s site
does this, for instance. To see what
top executives are thinking, be sure
to read the firm’s annual and quarterly
reports filed with the Securities and
Exchange Commission; they are often
available on your broker’s site as well
as the company’s web page.
Many brokers provide professional
research and stock analysis. Virtually
every brokerage offers quantitatively
generated research reports, and several
offer reports with in-depth qualitative
analysis from investment research
firms such as CFRA or investment
banks such as Credit Suisse. Such re-
ports can be useful for translating the
Byzantine language of stock analysis
into plain English and may lay out a
compelling thesis for or against a stock
you’re considering. Rotblut says he
likes to use such reports as a gut
check. “If I think a stock is underval-
ued and CFRA analysts say the stock
is overvalued, then it’s a sign to stop
and ask myself, Did I miss something?”
he says.
Stocks that look attractive but you
think are overpriced should be added
to your watch list. Depending on your
brokerage, you can set e-mail or mobile
app alerts for when news breaks about
stocks on your watch list, for instance,
or when the stock’s price moves below
a certain level. Waiting to buy until a
stock loses some luster may take some
courage, but, says Aguilar, it should
be easier for investors who have done
their research. ■CONTACT THE AUTHOR AT [email protected].