How to Find the Best Companies to Invest In

Updated: September 12, 2018

Do you want to know the best companies to invest in for 2018? Are you interested in strategies to uncover the best stock to buy? As of 2018 inflation is back and wages are finally starting to rise. How does that help you find the best stocks to buy? Financial services companies are likely to be winners because, with higher interest rates, they make more money on their loans. Losers include leveraged companies that must constantly borrow to keep afloat. That’s why, if you’re looking for the best companies to invest in, you should start by checking their balance sheet.

Another factor to consider, the tax cuts which dramatically lowered the corporate tax rate at the end of 2017. Many companies took the opportunity to repatriate overseas funds to the U.S. and paid taxes on them, causing a substantial one-time loss in many cases. The markets didn’t punish these shares in most cases for their proactive corporate accounting, and neither should you. Again, it pays to look at the balance sheet (which is easily available in quarterly filings you can access online).

With thousands of publicly traded stocks, finding the best stocks to invest in can be a daunting—but potentially lucrative—task. Here are 5 proven tips to help you find the right companies for your investment strategy.

Find the Best Companies to Invest In For Your Strategy

  1. If you want “bargain” stocks whose price lags the market, look at VALUE INVESTING.
  2. If you want to bet on a big payoff, but not current income, consider GROWTH STOCKS.
  3. For current income in a usually conservative investment, think about DIVIDEND STOCKS.
  4. To avoid putting too much of your portfolio in one stock (or buying an odd lot that’s harder to trade) look at stocks with a SHARE PRICE $50 OR LESS.
  5. To make sure your investment is liquid, be sure VOLUME IS 100K SHARES PER DAY OR MORE.

As you can see, Value investing, growth stocks and dividend stocks all have their fans. Or you can take the approach we use in stock trading training at Online Trading Academy, and find ticker symbols that fit your goals for low-risk, high-potential trades in the stock market.

Information on the best stocks to invest in and some of the best companies to invest in for 2018.

**Note: Examples throughout this article are for illustrative purposes only and are not a recommendation.

Value Investing

In order to learn how to find good stocks to invest in, let’s start with value investing—a favorite of “buy and hold” investors as opposed to day traders. Warren Buffett and, before him, Benjamin Graham were experts at this strategy. They’d look for the best companies to invest in with strong management and a product you could understand combined with value—a stock price that was significantly below what it should be.

In Graham’s day, and even in Buffet’s early years, this involved some good detective work because many corporate financial numbers weren’t readily available. Today, it’s a lot easier to find stock trading information via the Internet and new measurements have been created to define a company’s strength and performance. Analysts and brokers have subscription services that will rate a stock according to various yardsticks, making it much easier for them to find the best stock to invest in. As an example, General Electric (ticker: GE) and Ford (ticker: F) have recently made some value lists because these two famous American companies have been beat down to a very low price by market and operational setbacks.

Value investing—the Buffett/Graham approach—is as popular as ever, particularly in an aging bull market like today where stocks overall have gotten expensive. However, investors may be misled into buying a stock just because it’s cheap. It could be the company’s business is in decline, or it’s facing regulatory or management problems, and the stock is fairly priced even at a low level.

Examples of stocks with high potential for value investing

Here are five top value stocks as of September 6, 2018 based on two criteria: a price/book ratio of 2.84 or lower (indicating the stock has a very low price relative to its book value) and a dividend yield of 2.85% or higher (indicating the company is financially healthy enough to pay dividends). We used a screener provided by Fidelity Investments, but given the same inputs any broker’s screen should return similar results:

Symbol Company Name Security Price $ Price/Book Ratio Dividend Yield %
KRO Kronos Worldwide Inc. 19.67 2.71439 3.4017
TRI Thomson Reuters Corp. 44.94 2.70007 3.10252
AES The AES Corporation 13.285 2.6809 3.8777
CNP CenterPoint Energy Inc. 28.95 2.67246 3.83817
OSB Norbord Inc. 37.55 2.67001 13.06744

Growth Stocks

Growth stocks come from companies whose business and market share is increasing; investors are betting that the price of the stock will rise along with the company’s fortunes. Apple (ticker: AAPL) and Alphabet (ticker: GOOG) are good examples in today’s market. They are two very large companies which have rewarded investors with steady share increases over the years. Growth stocks typically pay small or no dividends, so you’re counting on share price increases and not regular income when you buy them. A classical ETF that represents growth stocks is the Russell 2000 ETF (ticker: IWM). Many individual stocks in the Russell are smaller companies that have good growth potential such as Dyax (ticker: DYAX), Cubesmart (ticker: CUBE), Manhattan Associates (ticker: MANH) and Tyler Technologies (ticker: TYL).

Examples of stocks with high potential for growth investing

Here are five top growth stocks as of September 6, 2018 based on the Price/Earnings to Growth ratio (PEG), a common measure to determine the future value of a stock combining its present day value and growth prospects:

Symbol Company Name Security Price $ PEG Ratio
IDTI Integrated Device Technology Inc. 43.4 300.69444
CARB Carbonite Inc. 42.65 285
HBI Hanesbrands Inc. 17.7 256.83453
ACIW ACI Worldwide Inc. 28.1 232.25
QSII Quality Systems Inc. 22.215 140

Dividend Stocks

Dividend stocks pay high yields and traditionally have a more stable stock price; these appeal to stock market investors looking for regular income, not appreciation. Dividend stocks have been more attractive in the recent environment of very low interest rates, which make bond investments relatively unappealing. But as interest rates rise, so do bond yields, and that is likely to hurt the share price of dividend stocks. Keep in mind that if a dividend stock pays 3% annually but its share price goes down 10%, then you would have a net loss of 7% if you decided to sell.

Examples of stocks with high potential for dividend investing

Here are five top dividend stocks as of September 6 with a secondary criterion of 13-week positive price performance. This is to ensure a high dividend percentage is not created by a declining stock price.

Symbol Company Name Security Price $ Dividend Yield % Price Performance (13 Weeks) %
KDP Keurig Dr Pepper Inc. 22.99 10.10893 18.52465
CTL CenturyLink Inc. 22.005 9.97691 23.0813
PSEC Prospect Capital Corp. 7.43 9.72973 8.0292
GME GameStop Corp. 16.21 9.34809 12.76006
ARCC Ares Capital Corp. 17.48 8.95009 2.58976

Stocks by Price

Buying expensive stocks (like GOOG or AMZN, both of which trade at over $1000) or very expensive stocks like BRK/A (over $300,000) reduces flexibility simply because you can have fewer stocks in your portfolio. We like to use a price of $50 per share or less and buy even lots (100 shares or multiples) when possible.

Examples of stocks under $50 with top 5-day price performance

This screen shows five top under-$50 stocks which also had the best five-day price performance as of early September 2018:

Symbol Company Name Security Price $ Price Performance (5 Days) %
PPCB Propanc Biopharma Inc. 0.1551 224.06484
MMKD MannKind Corp. 2.04 98.19005
AOBC American Outdoor Brands Corporation 14.59 42.49012
CVSI CV Sciences Inc. 3.84 30.5296
SESN Sesen Bio Inc. 2.16 19.89529

Stocks by Volume

Thinly-traded stocks can be difficult to sell in a timely fashion, meaning you may experience a wide gap between the bid and ask prices or (in a worst case scenario) might not be able to find a buyer at any price. As a rule of thumb we look for stocks which have a daily volume of 100,000 shares or higher, which includes virtually all actively-traded shares.

Examples of stocks with highest daily trading volume

This screen shows the five stocks with the highest 90-day average volume for the period ending September 6, 2018:

Symbol Company Name Security Price $ Volume (90 Day Avg)
GE General Electric Co. 12.51 59.49864
BAC Bank of America Corp. 30.85 59.13506
HMNY Helios and Matheson Analytic 0.0225 42.55133
MU Micron Technology Inc. 44.65 41.69184
T AT&T Inc. 32.18 39.10513

At Online Trading Academy, we recommend that students set their investing goals and the style of investing before they consider buying any stock. Then they can identify stocks that meet their specific criteria, and finally identify the specific Demand Zone in which to buy. Even the best stock isn’t a good investment if the timing isn’t right or it isn’t appropriate for your needs.

Ready to get started? Learn how to for free at one of our locations near you. Click here to get started.

Over 100,000 Lessons from the Pros readers. Check out last week's issue.

Free Class