How To Find High-Quality Stocks Using Finviz Screener

Finding promising stocks in today's market can feel like searching for a needle in a haystack. With thousands of companies listed, sifting through the noise to identify genuinely high-quality investment opportunities requires a systematic approach. That's where the Finviz stock screener comes in.

Finviz (finviz.com) is a powerful, free (with a premium option) online tool that allows you to filter stocks based on a wide range of fundamental, technical, and descriptive criteria. It's a favorite among both beginner and experienced investors for its ease of use and comprehensive data. This guide will walk you through how to leverage the Finviz screener to identify stocks with strong potential.

1. Understanding the Finviz Screener Interface

Before diving into specific filters, familiarize yourself with the Finviz screener interface. You'll find it at finviz.com/screener.ashx. The screener is divided into three main tabs:

  • Descriptive: Filters based on company characteristics like sector, industry, country, market capitalization, and dividend yield.
  • Fundamental: Filters based on financial metrics like price-to-earnings ratio (P/E), earnings per share (EPS) growth, debt-to-equity ratio, and return on equity (ROE). This is where you'll spend most of your time finding high-quality stocks.
  • Technical: Filters based on technical indicators like moving averages, relative strength index (RSI), and volume. This is useful for timing your entries and exits.

2. Defining "High-Quality"

Before you start screening, it's crucial to define what "high-quality" means to you. Are you looking for growth stocks, value stocks, or dividend-paying stocks? Your definition will guide your filter choices. For this example, let's assume we're looking for fundamentally sound companies with growth potential.

3. Setting Up Your Initial Screen: The Fundamental Tab

The fundamental tab is your primary weapon in the quest for high-quality stocks. Here's a step-by-step approach to setting up your initial screen:

  • Market Capitalization: Start by filtering for companies of a certain size. This depends on your risk tolerance. Larger companies (Large Cap, $10 billion+) are generally more stable, while smaller companies (Small Cap, $300 million - $2 billion) offer potentially higher growth, but also higher risk. For this example, let's choose Mid Cap ($2 billion - $10 billion).

  • Price-to-Earnings Ratio (P/E): This ratio compares a company's stock price to its earnings per share. A lower P/E ratio can indicate undervaluation, but it's important to consider industry averages. A very high P/E might indicate overvaluation. Let's set this to Under 25. This helps us avoid potentially overvalued stocks.

  • Earnings Per Share Growth (EPS Growth) (Quarter over Quarter): This measures the percentage change in a company's EPS from the same quarter last year. A positive and growing EPS is a sign of a healthy, growing company. Set this to Positive or even a specific percentage like Over 10%.

  • Return on Equity (ROE): ROE measures how efficiently a company is using its shareholders' equity to generate profits. A higher ROE is generally better. Set this to Over 15%. This indicates a company is effectively using its equity to generate returns.

  • Debt/Equity Ratio: This ratio compares a company's total debt to its shareholders' equity. A lower ratio generally indicates a more financially stable company. Set this to Under 1. This helps avoid companies with excessive debt.

  • Operating Margin: This measures a company's profit margin after deducting operating expenses. A higher operating margin indicates a more efficient and profitable business. Set this to Over 10%.

4. Refining Your Search: The Descriptive Tab

After setting your fundamental filters, you can refine your search using the descriptive tab.

  • Sector and Industry: Consider focusing on specific sectors or industries that you believe have strong growth potential. For example, you might be interested in the technology or healthcare sectors. Be careful not to narrow your search too much initially.

  • Country: If you're only interested in US-based companies, select "USA."

  • Dividend Yield: If you're looking for dividend-paying stocks, set a minimum dividend yield. However, be cautious about chasing high yields, as they can sometimes be unsustainable.

5. Adding Technical Indicators (Optional)

While our focus is on fundamental analysis, incorporating some technical indicators can help with timing your entries.

  • Moving Averages: Consider using moving averages to identify stocks that are trending upwards. For example, you could filter for stocks where the price is Above the 200-day Moving Average. This suggests the stock is in a long-term uptrend.

  • Relative Strength Index (RSI): RSI measures the magnitude of recent price changes to evaluate overbought or oversold conditions. An RSI above 70 is often considered overbought, while an RSI below 30 is often considered oversold.

6. Analyzing the Results

Once you've set your filters, Finviz will display a list of stocks that meet your criteria. Don't blindly invest in any of these stocks! This is just the beginning of your research.

  • Review the Company Profiles: Click on each stock to view its detailed profile on Finviz. Pay attention to the company's business description, financial statements, news headlines, and analyst ratings.

  • Dig Deeper: Use other resources to conduct further research on each company. Read their annual reports (10-K), quarterly reports (10-Q), and investor presentations. Understand their business model, competitive landscape, and growth prospects.

  • Consider Qualitative Factors: Numbers don't tell the whole story. Consider qualitative factors like the company's management team, brand reputation, and competitive advantages.

7. Common Mistakes to Avoid

  • Over-Optimizing: Don't try to create the "perfect" screen. Be realistic about the criteria you set.
  • Ignoring Industry Context: Always compare a company's financial metrics to its industry peers.
  • Relying Solely on the Screener: The Finviz screener is a powerful tool, but it's not a substitute for thorough research.
  • Chasing High Dividend Yields: High dividend yields can be a red flag, indicating that the company's stock price is declining due to financial difficulties.
  • Ignoring Market Conditions: Be aware of overall market trends and economic conditions, as they can significantly impact stock prices.

8. Example Screen: Growth Stock Focus

Here's an example of a screen focused on finding growth stocks using Finviz:

  • Market Cap: Mid ($2B-$10B) or Small ($300M-$2B)
  • P/E Ratio: Under 30
  • EPS Growth Q/Q: Over 15%
  • ROE: Over 15%
  • Debt/Equity: Under 0.75
  • Operating Margin: Over 12%

Remember to adjust these parameters based on your own risk tolerance and investment goals.

Conclusion: Your Journey to Finding Quality Stocks Starts Here

The Finviz stock screener is an invaluable tool for any investor looking to identify high-quality stocks. By understanding how to use its various filters and conducting thorough due diligence, you can significantly increase your chances of finding promising investment opportunities. Remember that screening is just the first step. Always do your homework and make informed investment decisions. Happy investing!