Stock Screening Education
Screening with Market Cap
Sometimes its the simplest things that produce the best results. In the market, there are few concepts as straight forward as the value of a company, commonly referred to as market capitalization. A companys market cap can be calculated by multiplying outstanding shares by the current share price.
For example, if a company with 100 million shares outstanding (the float) has a $10 share price, it has a market cap if $1billion. Categorically, this is a small cap stock. How about company B, the global conglomerate? If shares outstanding are 150 million with a $100 share price, this is a $15 billion large cap.
But even though calculating market cap doesnt require a physics degree, its an incredibly valuable data point when figuring out how to invest your hard-earned capital. Heres why.
Stocks are just like human beings. Small caps are like toddlers, not very well established but with immense upside and growth potential. Mid caps are like young adults, smart enough to fend off the completion but with a high probability to keep growing. And large caps are like baby boomers, resting on an established business and strong balance sheet with most upside potential already realized.
So keep in mind, if its long term gains you are looking for, you should stick to the small capper. But if you are looking for more stability, the large cap is the way to go. So now that weve taken a quick overhead view on how to calculate market caps and a few examples from each category, I want to show you how to find these stocks on your own.
How to Use Market Cap to Find Stocks
Zacks.com has a free screening program on its web site that can help you use screen by market cap to find your next investment target.
1.) Go to "Screening" at the top of the Zacks.com home page.
2.) Once on the screening page, click on "Custom Screener".
3.) In the Custom Screen window, under "popular" items, you will find market cap criteria.
4.) I selected greater than or equal to $1 billion, but feel free to adjust the parameters
Heres a quick look at how the screener will add your market cap criteria to a list of key items at the top of the page.
You can then add on additional criteria at your discretion, like a P/E ratio or stocks trading near their 52-week high. In this case I added a P/E criteria and a stock trading within .95% of the 52-week high.
Improving Your Market Cap Screening Results
Although the custom screener is a great tool for many investors, some people are going to want to take the next step and upgrade to a more powerful tool. Here are some additional items you may want to consider.
1.) What percent of shares are owned by insiders or institutions?
2.) What is the correlation between sales and market cap?
These additional criteria can be located in the Zacks Research Wizard screening program under "Company", "Size and Share Volume" and "Sales." See below for an example.
The marker cap isnt the fanciest criteria in the world, but by simply measuring and analyzing the size of a company against its peers can give you an inside look into those ready to grow and those headed for their golden years.