Screening for Value Stocks

The value investing style is a popular style in volatile markets at it evokes stability over some of the other styles of investing. Value stocks are usually defined as companies currently trading at a discount to their true value. In a standard definition, value stocks have relatively low price-to-earnings (P/E) ratios and price-to-sales (PS) ratios, Generally, they have higher dividend yields than other investing styles, although not every value stock will pay a dividend.

Criteria Defined

Historically, for value investing, investors would screen for stocks with a low P/E ratios and P/S ratios. Some value investors might also like to screen for companies that are seeing earnings strength, a dividend yield, or a high return on equity. An investor can use several criteria to create their own personal screener that fits their own investment needs.

How To Use

The criteria can be narrowed by using the criteria found in the Zacks Custom Screener. Many of the criteria are listed in the "popular items" category seen in the snapshot below.

Improving Your Value Screening Results

The Custom Screener has plenty of excellent tools that can assist investors in identifying winning stocks. However, investors can use the more advanced capabilities of the Research Wizard screening program to further narrow their approach by choosing among 650 traits. More importantly, investors can then back test any given strategy to gauge its historical performance in different market environments.

For example, Research Wizard has the capability to target the ten cheapest stocks with the lowest price-to-sales ratio. The value criteria can also be applied to examine earnings surprises alongside, for instance, return on equity. Investors can backtest this strategy over a preferred timetable of several weeks to several years.

Conclusion

The Custom Screener and the Research Wizard both provide powerful tools that allow the investor to wade through over 8,000 stocks to identify those stocks that fit into a value investing strategy.

Additional Zacks Resources

Zacks Guide to Value Investing provides information to help investors create value strategies.

Zacks Customer Screener helps investors find great stocks.

Zacks Method for Trading-Learn from the pro's how to develop customized trading strategies.

Research Wizard creates customized portfolios.