How To Screen Penny Stocks Effectively With Finviz

How To Screen Penny Stocks Effectively With Finviz

Penny stocks – the land of potential moonshots and devastating losses. Navigating this volatile market requires a solid strategy, and a crucial part of that strategy is effective screening. While there are many tools available, Finviz stands out as a powerful and free resource for filtering through the noise and identifying potentially promising penny stocks. This guide will walk you through how to use Finviz to screen penny stocks effectively, helping you narrow your focus and improve your chances of finding those hidden gems.

Before we dive in, a quick disclaimer: penny stocks are inherently risky. Thorough due diligence is paramount. Finviz is a tool to help you find potential candidates, but it's not a substitute for careful research and understanding the risks involved. Don't invest more than you can afford to lose.

This guide will focus on using Finviz’s screener to identify penny stocks based on various criteria, including price, volume, and fundamental indicators. Let's get started!

1. Accessing the Finviz Screener

First, head over to Finviz.com. On the homepage, you'll find a navigation bar at the top. Click on the "Screener" tab. This will take you to the heart of Finviz's stock screening capabilities.

2. Setting Initial Filters: Focusing on Penny Stocks

The first step is to narrow down your search to specifically focus on penny stocks. This is done by setting the price range.

• Price: In the "Descriptive" tab, locate the "Price" dropdown menu. Select "Under $5" (or a lower threshold if you prefer). This immediately filters out stocks trading above your chosen price point, leaving you with potential penny stocks. Remember, the SEC defines penny stocks as those trading below $5.

3. Volume: Ensuring Liquidity

Liquidity is crucial when dealing with penny stocks. Low volume can make it difficult to buy or sell shares at your desired price, leading to significant slippage.

• Volume: In the "Descriptive" tab, find the "Volume" dropdown menu. Select a minimum average volume, such as "Over 100K" or "Over 200K". This ensures that the stocks you're considering have a reasonable level of trading activity. Higher volume generally indicates better liquidity, but it can also mean more volatility.

4. Market Cap: Understanding Company Size

Market capitalization gives you an idea of the company's overall size. Penny stocks often have very small market caps, making them more susceptible to manipulation and rapid price swings.

• Market Cap: In the "Descriptive" tab, look for the "Market Cap" dropdown. Consider filtering for "Micro" or "Small" cap stocks. Micro-cap stocks typically have a market cap between $50 million and $300 million, while small-cap stocks range from $300 million to $2 billion. This helps you identify companies within the typical penny stock range.

5. Industry & Sector: Narrowing by Category

Filtering by industry or sector can help you focus on areas you understand or believe have growth potential.

• Sector/Industry: In the "Descriptive" tab, use the "Sector" and "Industry" dropdown menus to select specific areas of interest. For example, if you're interested in renewable energy, you could select "Energy" as the sector and then further refine your search by choosing a specific industry like "Solar."

6. Fundamental Analysis: Digging Deeper

While penny stocks are often driven by hype and speculation, examining fundamental indicators can help you avoid companies with truly disastrous financials. The "Fundamental" tab allows you to filter based on key financial metrics.

• Debt/Equity Ratio: A high debt-to-equity ratio can indicate a company is overleveraged. Consider filtering for a Debt/Equity ratio "Under 1" or "Under 0.5" to find companies with relatively less debt.
• Sales Growth: Look for companies showing positive sales growth. Filter for "Sales Growth Q/Q" or "Sales Growth Y/Y" "Over 10%" or higher to identify companies with increasing revenue.
• Profit Margin: While many penny stocks are not profitable, a positive profit margin can be a good sign. Filter for "Gross Margin" or "Operating Margin" "Over 0%" to find companies that are generating some profit. Be cautious, as these metrics can be easily manipulated.

7. Technical Analysis: Spotting Potential Trends

The "Technical" tab allows you to screen based on technical indicators, which can help you identify potential entry and exit points.

• Moving Averages: Look for stocks trading above their 20-day, 50-day, or 200-day moving averages, which can indicate an uptrend. Use the "SMA20," "SMA50," or "SMA200" filters to find stocks meeting this criterion. For example, select "Price above SMA20" to find stocks trading above their 20-day simple moving average.
• Relative Strength Index (RSI): The RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. An RSI below 30 often suggests a stock is oversold, while an RSI above 70 suggests it's overbought. Use the "RSI (14)" filter to find stocks with an RSI in your desired range.
• Chart Patterns: While Finviz doesn't automatically identify chart patterns, you can use the screener to find stocks that might be forming certain patterns. For example, you could look for stocks that have recently crossed above their 50-day moving average after a period of consolidation, which could indicate a potential breakout.

8. News and Analyst Ratings: Staying Informed

While analyst ratings are less common for penny stocks, keeping an eye on news and press releases is crucial.

• News: Regularly check the news feed for any stocks that pass your initial screening criteria. Look for positive developments, partnerships, or product launches that could drive the stock price higher. Be wary of promotional articles or paid advertisements.
• Analyst Ratings: While less common for penny stocks, if available, pay attention to any analyst ratings or price targets. However, take these with a grain of salt, as they may not always be accurate.

9. Saving Your Screens

Once you've created a screen that you're happy with, you can save it for future use. This allows you to quickly run the same screen without having to re-enter all of your criteria.

• Saving: At the top of the screener page, you'll find a "Save Screen" button. Click this button and give your screen a name. You'll need to create a free Finviz account to save your screens.

10. Due Diligence: The Most Important Step

Remember, Finviz is just a tool for identifying potential penny stocks. It's not a substitute for thorough due diligence. Before investing in any penny stock, you should:

• Research the Company: Understand the company's business model, financials, and management team.
• Read SEC Filings: Review the company's 10-K and 10-Q filings to get a better understanding of its financial performance.
• Assess the Risks: Understand the risks associated with investing in penny stocks, including the potential for fraud, manipulation, and illiquidity.
• Consult a Financial Advisor: If you're unsure about whether a particular penny stock is right for you, consult with a qualified financial advisor.

Conclusion: Screening Smarter, Not Harder

Finviz is a valuable tool for screening penny stocks, but it's important to use it wisely. By setting appropriate filters for price, volume, market cap, and fundamental indicators, you can narrow your focus and identify potentially promising opportunities. However, remember that screening is just the first step. Thorough due diligence is essential before investing in any penny stock. Use Finviz to screen smarter, not harder, and always prioritize risk management. Good luck!