The Best Finviz Filters For Finding Undervalued Stocks

Finding undervalued stocks can feel like searching for a needle in a haystack. With thousands of publicly traded companies, sifting through the noise to identify genuinely promising opportunities requires a systematic approach. Fortunately, tools like Finviz offer powerful filtering capabilities that can significantly streamline this process. Finviz allows investors to screen stocks based on a multitude of fundamental and technical criteria. This post will guide you through some of the best Finviz filters to help you uncover potentially undervalued stocks, giving you a head start in your investment research.

We'll focus on a combination of fundamental ratios and other key metrics that often signal undervaluation. Remember, no single filter is a magic bullet. It's crucial to use these filters as a starting point and then conduct thorough due diligence on any stock that appears promising.

Here's how to leverage Finviz to find those hidden gems:

1. Accessing the Finviz Screener

First, navigate to the Finviz website (finviz.com). Click on the "Screener" tab. This will take you to the stock screener interface, where you can begin applying your filters. Finviz offers both free and paid (Elite) versions. The free version provides ample functionality for basic screening, while the Elite version offers real-time data and more advanced features. For the purpose of this guide, we'll focus on filters available in the free version.

2. Focusing on Fundamental Filters: The Core of Undervaluation

The "Fundamental" tab is where you'll find the most important filters for identifying undervalued stocks. Here are some key ratios to consider:

  • P/E Ratio (Price-to-Earnings Ratio): A low P/E ratio often suggests that a stock is undervalued relative to its earnings. Look for stocks with a P/E Ratio below the industry average or below the historical average for the specific stock.

    • Finviz Filter: Under "Valuation," select "P/E Ratio" and then choose a range like "Under 15" or "Under Industry." Remember that different industries have different average P/E ratios. A low P/E in a high-growth tech sector might be different than a low P/E in a mature utility sector.

  • Forward P/E Ratio: This ratio uses estimated future earnings instead of trailing earnings, providing a more forward-looking valuation. A low Forward P/E suggests the market may be underestimating future growth potential.

    • Finviz Filter: Under "Valuation," select "Forward P/E" and choose a range like "Under 12" or "Under Industry."

  • PEG Ratio (Price/Earnings to Growth Ratio): The PEG ratio factors in a company's expected earnings growth rate, offering a more nuanced valuation than the P/E ratio alone. A PEG ratio below 1 is often considered a sign of undervaluation.

    • Finviz Filter: Under "Valuation," select "PEG Ratio" and choose "Under 1."

  • P/B Ratio (Price-to-Book Ratio): This ratio compares a company's market capitalization to its book value (assets minus liabilities). A low P/B ratio could indicate that the market is undervaluing the company's assets.

    • Finviz Filter: Under "Valuation," select "P/B Ratio" and choose "Under 1" or "Under Industry." Be cautious with this ratio for companies with significant intangible assets.

  • P/S Ratio (Price-to-Sales Ratio): This ratio compares a company's market capitalization to its revenue. It's particularly useful for valuing companies with negative earnings or inconsistent profitability.

    • Finviz Filter: Under "Valuation," select "P/S Ratio" and choose "Under 2" or "Under Industry."

  • Debt/Equity Ratio: While not directly a valuation metric, a low Debt/Equity ratio can indicate a financially healthy company that is less likely to face financial distress. This can contribute to undervaluation if the market is overly concerned about debt levels.

    • Finviz Filter: Under "Financial," select "Debt/Equity" and choose "Under 0.5" or a similar level depending on the industry.

3. Incorporating Technical Filters for Confirmation

While fundamental analysis is crucial for identifying undervalued stocks, technical analysis can provide additional confirmation and help you time your entry.

  • SMA200 (Simple Moving Average 200): Look for stocks trading above their 200-day simple moving average. This generally indicates an upward trend and can suggest that the stock is gaining momentum.

    • Finviz Filter: Under "Technical," select "SMA200" and choose "Price Above SMA200."

  • RSI (Relative Strength Index): The RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. An RSI below 30 suggests the stock may be oversold and due for a rebound. However, be cautious as a low RSI can also indicate a stock in a strong downtrend.

    • Finviz Filter: Under "Technical," select "RSI (14)" and choose "Under 30." This filter should be used with caution and in conjunction with other indicators.

4. Adding Descriptive Filters for Context

The "Descriptive" tab allows you to narrow down your search based on factors like market capitalization, industry, and country.

  • Market Cap: Choose a market capitalization range that aligns with your investment strategy. Small-cap stocks may offer higher growth potential but also come with greater risk.

    • Finviz Filter: Under "Descriptive," select "Market Cap" and choose a range like "Small (Under $2 Billion)" or "Mid ($2 Billion to $10 Billion)."

  • Industry: If you have expertise in a particular industry, focus your search on that sector.

    • Finviz Filter: Under "Descriptive," select "Industry" and choose the relevant industry.

5. Example Screening Strategy: A Value Investor's Approach

Here's an example of a Finviz screen designed to find potentially undervalued stocks:

  • P/E Ratio: Under 15
  • Forward P/E: Under 12
  • PEG Ratio: Under 1
  • P/B Ratio: Under 1.5
  • Debt/Equity: Under 0.75
  • Market Cap: Mid ($2 Billion to $10 Billion)

This screen will identify mid-cap companies with low valuation ratios and relatively low debt. Remember to adjust these filters based on your own risk tolerance and investment goals.

6. Beyond the Screen: Due Diligence is Key

It's crucial to remember that Finviz is just a screening tool. The stocks that appear on your screen are potential opportunities, not guaranteed winners. Before investing in any stock, conduct thorough due diligence:

  • Review the company's financial statements: Analyze the income statement, balance sheet, and cash flow statement to understand the company's financial health and performance.
  • Read company reports and news articles: Stay informed about the company's business strategy, competitive landscape, and any potential risks or opportunities.
  • Understand the industry: Gain a deep understanding of the industry in which the company operates.
  • Consider the management team: Evaluate the experience and track record of the company's management team.

7. Common Mistakes to Avoid

  • Relying solely on the screen: Don't invest in a stock just because it appears on your Finviz screen. Due diligence is essential.
  • Ignoring industry context: Valuation ratios should be compared to the industry average.
  • Chasing low P/E ratios in declining industries: A low P/E ratio may simply reflect a company's poor prospects.
  • Over-optimizing the screen: Don't try to create a screen that only returns one or two stocks. A broader screen allows you to explore more opportunities.

Conclusion: Your Path to Finding Undervalued Stocks

Finviz is a powerful tool for identifying potentially undervalued stocks. By using the filters described above and conducting thorough due diligence, you can significantly improve your chances of finding hidden gems in the market. Remember that investing is a long-term game, and patience and discipline are essential for success. Use Finviz to narrow your focus, but always rely on your own research and judgment to make informed investment decisions. Good luck, and happy investing!