How to Find the Best Companies to Invest In
Looking at the stock market for the best companies to invest in for 2017? Are you interested in strategies to uncover the best stock to buy?
Early in the year, many experts were making predictions based on the goals of the Trump administration. If the President is successful in building infrastructure, for example, that might benefit heavy equipment manufacturers and the stocks of companies that supply raw materials like steel and concrete.
A big tax cut might help small businesses whose shares traditionally lag the prices of more established companies.
But predictions are just that, and they may or may not play out in the real market. If you want to do your own research and make your own decisions, here are five tips to get you started.
5 Tips to Find the Best Companies to Invest In
- If you want “bargain” stocks whose price lags the market, look at VALUE INVESTING.
- If you want to bet on a big payoff, 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 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.
- 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.
In order 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, auto companies have recently made some value lists because they have a strong infrastructure, but their price has been beat down by market conditions.
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.
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).
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.
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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