How to Find the Best Companies to Invest In
By: Tillie Allison | Updated: August 15, 2019
Do you want to know the best companies to invest in for 2019? Are you interested in strategies to uncover the best stock to buy? If interest rates increase, financial services companies are likely to be winners because, with higher interest rates they make more money on their loans. Losers might include leveraged companies that must constantly borrow to keep afloat. The opposite is true if interest rates decrease. That’s why, if you’re looking for the best companies to invest in, you should start by checking the company’s balance sheet.
Selecting New Companies to Invest In
When selecting new companies to invest in, consider choosing companies from a variety of sectors. There are 11 sectors in the S&P 500 to choose from. The companies included in the sectors could be a good choice for value investing, growth investing and/or paying dividends. These sectors include financial, technology, telecom, real estate, utility, material, energy, consumer staple, industrial, consumer discretionary and health care companies. There is a price range for most any portfolio size. By successfully diversifying the industry groups and sectors that make up their portfolio, investors may put themselves in a position to benefit from the stronger stocks in the portfolio, in spite of weaker ones that they may hold, thereby potentially reducing overall losses.
Investors could also consider sector, Exchange Traded Funds (ETFs). Sector ETFs consist of a group of stocks; this means that an investor does not have single stock risk, which is the risk of one company losing significant value and resulting in catastrophic loses. The sector ETFs are weighted so no one company should be able to destroy the performance of the group. By successfully diversifying into different sector ETFs, the stronger sectors should outperform the weaker sectors in a bull market. The Sector ETFs include growth stocks and value stocks (dividend paying). Growth stocks tend to be more volatile, rising quickly in bull markets and crashing in bear markets. Dividend stocks usually rise more slowly in bull markets and fall less in bear markets.
Below you will find a list, in my opinion, of top stocks in the financial, technology, real estate and consumer staples sectors of the S&P 500 ,as well as some Exchange Traded Funds that represent each sector. These might be a good place for a beginning investor to start when choosing stocks, though each one should be evaluated to see if they meet the individual’s overall goals and risk parameters.
||Vanguard Real Estate
||Procter & Gamble
||XLF Financials ETF
|JPMorgan Chase & Co
||American Tower Corp
||XLK Technology ETF
|Bank of America
||Visa Inc Class A
||Simon Property Group
||IYZ Telecom ETF
|Wells Fargo & Co
||Cisco Systems Inc
||RWR Real Estate ETF
||XLU Utilities ETF
|American Express Co
||Mastercard Inc A
||XLB Basic Materials ETF
||XLE Energy ETF
|Goldman Sachs Group
||XLY Consumer Staples ETF
||PayPal Holdings Inc
||XLI Industrials ETF
||XLP Consumer Dis. ETF
Remember, there are many more than just these stocks and ETFs to choose from. With thousands of publicly traded stocks available, finding the best stocks to invest in can be a daunting—but potentially beneficial—task. Here are 5 common strategies to help you determine the right companies for your investment strategy.
Find the Best Companies to Invest In For Your Strategy
- If you want “bargain” stocks, look at VALUE INVESTING.
- If you want long term growth, but not current income, consider GROWTH STOCKS.
- For current income in a usually conservative investment, think about DIVIDEND STOCKS.
- To avoid putting too much of a portfolio in one stock (or buying an odd lot that’s harder to trade) look at stocks with a SHARE PRICE OF $50 OR LESS.
- Those looking for a more liquid investment need to 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. The approach we use in stock trading training at Online Trading Academy is to find ticker symbols that fit individual goals for potentially low-risk, high-potential trades in the stock market.
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. To find the best companies to invest in they’d look for companies 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 to find what are potentially the best stock to invest in. Examples are Dow Chemical (ticker: DOW) and Whirlpool Corp. (ticker: WHR) that 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 (August 2019) where stocks overall have gotten expensive. However, investors may be misled into buying a stock just because it’s cheap. It is important to keep in mind, though, that the company’s business may be in decline or that it’s facing regulatory or management problems meaning 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 July 15, 2019 based on two criteria: a price/book ratio (P/B Ratio) of less than 3 (indicating the stock has a very low price relative to its book value) and a dividend yield of 3% 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:
||Dividend Yield %
||Conagra Brands, Inc.
||Cardinal Health, Inc.
Growth stocks are those companies whose business and market share is increasing, causing investors to believe that the price of the stock will rise along with the company’s fortunes. Chipotle Mexican Grill (ticker: CMG), and Facebook, Inc. (ticker: FB), 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 Brooks Automation (ticker: BRKS), Petmed Express (ticker: PETS), Yoya Financial (ticker: VOYA), Innoviva (ticker: INVA), and Benchmark Electronics (ticker: BHE).
Examples of stocks with high potential for growth investing
Here are five top growth stocks as of as of July 15,2019 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:
||General Motors Co.
||Host Hotels & Resorts, Inc.
||Fifth Third Bancorp
Dividend stocks pay potentially 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 July 15, 2019 with price trading higher than the 50-day simple moving average (SMA). This is to ensure a high dividend percentage is not created by a declining stock price.
||Dividend Yield %
||Distance From 50-Day SMA
||General Motors Co.
||Fifth Third Bancorp
||People's United Financial, Inc.
Stocks by Price
Buying expensive stocks (like GOOG or AMZN, both of which trade at over $1000 per share) or very expensive stocks like BRK/A (over $300,000) reduces flexibility simply because you can have fewer stocks in your portfolio. We recommend using a price of $50 per share or less and buying in even lots (100 shares or multiples) when possible.
Examples of stocks under $50 with top 5-day price performance
These are five stocks less than $50 per share that are also trading higher than the 50-day simple moving average (SMA) as of July 15, 2019.
||Distance From 50-Day SMA
||General Motors Co.
||Century Link, Inc.
||Huntington Bancshares Inc.
||Regions Financial Corporation
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
These are five stocks with the highest average volume (over 10 million shares) for 3 months as of July 15, 2019.
||Volume (3 Months)
||Ford Motor Co.
||Wells Fargo & Co,
||JPMorgan Chase & Co.
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.
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About the Author
After graduating from the Online Trading Academy in 2006, Tillie Allison began to apply the rule-based core strategy to trade the financial markets. Tillie also gained trading experience working the trade desk at a futures firm. She is a passionate trader/instructor and teaches students how to identify low risk/high reward trades trading the rule-based core strategy.
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