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Stock Screening Education
Screening by Sector
Many times investors are drawn to a specific sector as an opportunity. The reasons may have to do with new product launches (e.g. technology), government subsidies (e.g. alternative energy), or an increase in wages (e.g. consumer discretionary). Studies have shown that roughly 50% of a stock’s price performance can be attributed to its sector. Top down sector analysis is quite common and can be very effective in isolating the strongest candidates from a large field of potentials.
To screen by sector, identify the broad sector and select from the appropriate industry groups within. For example, the Consumer Discretionary sector includes many industries: leisure and recreation, home furnishings, advertising, hotels, and even schools. Broad sectors are very useful for asset allocation, but not necessarily for filtering out winning stocks. By narrowing our choices to a specific industry, a more definitive group is chosen.
How to Use
You can screen by sector or industry in the Custom Screener. Both are listed under “Company Descriptors and they provide an easy to select drop down of choices. For our example, we are going to begin with the Consumer Discretionary sector and then identify the industries within.
The Custom Screener instantly tells us how many stocks fall into this sector (488 matches). Our next step is to Run the Screen and select Edit View. Now, by choosing Company Descriptors and checking Industry, we can adjust our report to show the different Industries. By clicking the Industry header in the report, the Industries are then sorted alphabetically.
Finally, we can add further criteria such as Market Cap (Size and Share Volume) and the Zacks Rank (Popular Items) to complete our sector analysis.
Further Refining your Screen
As you can see, the Custom Screener allows you to select from many criteria to build your screen. The Research Wizard gives you access to a more powerful tool with an immense database. You will also have the advantage of being able to backtest any strategy to determine its success and performance.
The Research Wizard has over 650 different financial criteria to choose from and a variety of ways to calculate and display them. For example, rather than having a sector already in mind, you could determine the ‘best’ sector in a variety of ways: recent price performance, estimated sales growth, or even the next 3-5 years estimated EPS growth. You can also rank these criteria by order of importance! The Research Wizard will also save your screens so you can access them quickly at anytime.
The Zacks Research Wizard allows you to screen by sector in a variety of ways. Whether you use Top Down or Bottom Up analysis, you can rank sectors and initiate screens with very detailed criteria.
The Custom Screener is ideal for learning the basics to screening. The Research Wizard can create very descriptive screens and backtest performance. The Custom Screener and the Research Wizard both provide you with the ability to create and run screens to help you find winning sectors, industries, and stocks, an incredible value in today’s markets.