Feeling overwhelmed with too much information? Here’s a simple way to find stocks worth buying.
As investment professionals, we’re used to spending hours digging into a company’s history and financials, looking at stock charts, and comparing industry leaders. We read earnings reports and debate the finer points of stock market research tools. We also realize that not every investor has the time or interest in that. At the same time, every investor wants to find stocks worth buying. And we think most investors would agree that there’s a sense of excitement and pride when you find a stock on your own that goes on to perform well.
How do you do that, though? Luck can play a part for some investors and for some investments, but that’s a precarious factor to rely on. Nor can you rely on social media or random blogs for investment advice. Sure, they get it right sometimes, and they may have some great suggestions, but they don’t know your story. You may not want to take the risk on a volatile stock. You may not be looking for high-priced blue-chip stocks. The only person who knows which investments are right for you is you.
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You don’t need to be an investing pro to find stocks worth buying
There is a lot you can learn from analyzing charts and looking at ratios, but again, not everyone has the time or inclination to put into that. We certainly recommend it, since more information often leads to more confident buying and selling. However, a few simple tips can help you locate stocks worth buying and holding in your portfolio.
Begin by determining what you’re looking for in an investment. Blue-chip dividend stocks can build a nice nest egg for you over time. Other stocks, such as small caps and tech stocks may offer significant growth, but they also come with more risk and volatility.
One of the most straightforward tips is to buy what you know. If you use a lot of software, for example, you know which companies you like, which products have great customer service, and which ones consistently impress consumers. This doesn’t mean you should buy it just yet, but it’s a great starting point.
Skim the financial news. This is different than the personal blogs and social media posts. It’s one thing for Jane Smith to say that XYZ is going to be the next big stock. It’s another thing altogether when New York Times financial analyst Jane Smith says stock XYZ has increased revenue and is trending upward. Again, this doesn’t mean you should rush out and buy shares of stock XYZ, but it is worth paying attention to.
Easy, right? Think about the products you know and see what reputable financial news sites have to say about them. Now let’s dig just a bit deeper to find stocks worth buying. This is where we get into the fundamentals. Don’t worry. This is still easy.
The fundamentals are a company’s finances. While that can be a complex set of numbers to dive into, one of the more important numbers to look for is earnings or net profit. That’s how much a company has made after expenses. If you use Yahoo Finance to explore stocks, just scroll down to the graph on the right sidebar and you get a visual of how much money a company is making or losing.
In short, most stocks worth buying will have positive and growing earnings. That’s not to say there aren’t excellent stocks out there that have yet to turn a profit. But your best bets will be companies that are already profitable.
Lastly, look at the stock’s chart for the last three years or more. Yes, there is a lot more to the value of a stock than the share price. This is also an easy way to get an idea of what to expect from a stock. Every stock will wobble up and down a little. Some dividend stocks will hold relatively steady for years, with investors relying on the dividend for income rather than stock price appreciation. Others will have charts that look more like an amusement park ride, consistently rising and falling. Again, this only tells you so much about a stock. Turnarounds could happen at any time. Seemingly great stocks can crash and burn or decline slowly for years. There are no guarantees in the market. But a price chart does give you some sense of what you may be in for.
If you want some help navigating the market, be sure to browse our website, sign up for our daily emails, or explore our premium advisories, where we give you detailed advice on investing to meet your goals.
Do you have some easy approaches to finding stocks that you like?