How to Invest in Stocks Using Schwab's Stock Lists

Key Points

  • If you're not sure how to invest in stocks, finding the right stock to buy can sometimes seem overwhelming.
  • Schwab Stock Lists can help you narrow down the stock universe to generate buy ideas.
  • They can also help you save time when trying to maintain a diversified portfolio.

"How do I get started investing in stocks?" "Which stocks should I consider first?" These are questions I often hear from investors interested in individual stocks. Certainly, the task of finding stocks for your portfolio can look intimidating, even with the help of Schwab Equity Ratings® and its "buy stocks rated A or high B" guidance. So Schwab has created a source of ideas to help new and experienced investors alike—Schwab Stock Lists™.

Schwab Stock Lists can help make the process of researching your stock ideas easier by:

  • Generating buy ideas.
  • Giving your stock research efforts a head start in the effort to find potential candidates.
  • Helping maintain your portfolio's diversification.
  • Saving you time in managing your portfolio.

Let's find out how.

What are the types of Stock Lists?

To get started using the Stock Lists, it's important to know what they are. There are 15 Schwab Stock Lists based on Schwab Equity Ratings:

  • Ten sector lists which have the top five stocks from each of the stock market's 10 economic sectors (such as consumer staples, industrials, health care, and so forth).
  • Four style lists—large-cap value, large-cap growth, small-cap value and small-cap growth—which contain the 10 top-rated stocks in each style category.
  • The Schwab Composite Stock List, which contains the top three stocks from each sector list.

How do stocks make it on to the Stock Lists?

To be included on a Stock List:

  • A stock's Schwab Equity Rating must be B or better.
  • Stocks with market capitalizations below $250 million and those priced under $5 or over $300 are excluded. This tends to eliminate illiquid stocks that are relatively difficult to trade.
  • Our Large Cap Growth and Large Cap Value lists are drawn from the 250 largest stocks, by market cap, which meet the criteria above.
  • To determine which stocks are considered for the "Growth" and "Value" style lists, the stock lists draw from a combination of Price/Earnings and Price/Book Value ratios.

Where do I find the Stock Lists?

To access the Stock Lists, clients can click on the links below (you will be prompted to log in):

Schwab Composite List

Schwab Large Cap Growth List

Schwab Large Cap Value List

Schwab Small Cap Growth List

Schwab Small Cap Value List

Schwab Energy List

Schwab Materials List

Schwab Industrials List

Schwab Consumer Discretionary List

Schwab Consumer Staples List

Schwab Health Care List

Schwab Financials List

Schwab Information Technology List

Schwab Telecommunications List

Schwab Utilities List

How should I use the Stock Lists?

The first step in using the Stock Lists is to keep in mind our guidance about maintaining a well-diversified portfolio. It is generally a good idea to hold 40 or more stocks from different economic sectors and capitalization categories, at least one from each sector and at least one each from the large- and small-cap categories.

Diversifying across sectors and capitalization categories is a vitally important step in controlling the overall risk of your portfolio. Diversification reduces the chance of being overexposed to underperforming sectors or to periods when large or small stocks underperform. And conversely, diversification also reduces the chance of being underexposed to an outperforming sector or capitalization category!

Here's a step-by-step guide of how the Schwab Stock Lists can help you diversify by sector and market capitalization and find new style and sector buy candidates.

  • Determine your benchmark weights. First, go to Schwab Sector Views to find the "benchmark weights" of sectors within the Standard & Poor's 500® index.1 Your initial objective should be to buy stocks from each sector to match, as a percentage of your total number of stocks, the benchmark weights shown. For example, if the Industrials sector's benchmark weight is 10%, then four of the stocks in a 40-stock portfolio should be industrials.
  • Diversify by sector and market capitalization. Sector and market cap diversification are, we believe, the most important risk-control steps you can take within your stock portfolio—and generally the easiest to implement. The Schwab Composite Stock List is a great place to start, since it contains the three best-rated stocks from each sector. Sort the list by sector by clicking on the column header, which makes it easy to find the stocks for each sector. Consider the A- and B-rated stocks in each sector as potential buy ideas. Within each sector, look in the Market Cap column for at least one large-cap and one small-cap stock. The individual Sector lists each contain five stocks; consider them if you need additional ideas. Once you're armed with buy ideas, you should follow the steps in our recommended research process.
  • Finding style stocks. There are no generally accepted definitions for characterizing stocks as "value" or "growth." And it's extremely difficult to predict which style will outperform in the future. But for investors who want exposure to one style or the other, Schwab provides four Style lists: Large Cap Growth, Large Cap Value, Small Cap Growth and Small Cap Value.
  • Tilt if you're so inclined. Just as it's difficult to predict which style will outperform, it's also difficult to predict sector performance. Our core recommendation, therefore, is to invest on a sector-neutral basis. "Tilting" means overweighting your portfolio in favor of one or more sectors or a market capitalization category (and, by implication, underweighting it in others), based on a forecast of the future performance of that sector or market cap group. Schwab Sector Views, described above, represent our intermediate-term outlook for various sectors, or you may have your own viewpoint. If you wish to adopt a sector or capitalization tilt, use the Composite, Sector or Style lists to find buy ideas.
  • Manage your portfolio. We suggest that you check the Schwab Equity Ratings of your portfolio's stocks each week. If an analysis of your portfolio suggests that you should sell one or more stocks, or that you're overweight or underweight in one or more sectors, you can use the Composite List and the Sector lists as a source for buy ideas.

We created these lists because we believe that a key aspect of investment success is creating and maintaining a diversified portfolio. Diversification across sectors and capitalization groups are vital parts of this effort, and our Stock Lists can make this goal much easier to attain.

I hope this enhanced your understanding of Schwab Stock Lists. I welcome your feedback—clicking on the thumbs up or thumbs down icons at the bottom of the page will allow you to contribute your thoughts.

Next Steps

For more on the research behind Schwab Equity Ratings and how to use them, read Schwab Equity Ratings® Foundations and Managing a Stock Portfolio Using Schwab Equity Ratings

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