Find the Best Stocks to Buy
Before you start the process of picking stocks, you have to decide what your investment goals are. Are you a day trader who wants to make short-term profits by speculating on the fluctuations in the price of stock, or do you plan to hold on to your shares long-term, the way Warren Buffet does? The answer to this question will help you decide which stocks will best meet your particular requirements.
In order to narrow down their choices, the smartest investors choose to focus on particular market sectors. There are eleven sectors represented in the stock market, including utilities, financials, real estate, energy, consumer stables, consumer discretionary, technology, healthcare, industrials, materials and telecom.
The Best Strategy to Pick Stocks
Once you’ve decided which sectors you want to focus on, it is time to start picking stocks from those sectors. This would involve a significant amount of in-depth research before you make your decision.
There are two basic strategies most stock investors use. Fundamental analysis involves looking at the financial data of a company in order to determine its stock’s potential for future growth. Some of the things you are looking for include its profitability, its revenues, and its ability to pay its debts and how it performs relative to other companies in its market sector.
Technical analysis looks at how the price of the stock is performing currently, as well as how it has performed in the past. The theory behind this strategy is that prices move in trends, and by identifying them, you can predict how the stock price will perform in the future.
Of course, there are other strategies you can use, such as growth investing and value investing. As a beginner, however, it is best that you focus on the strategies above until you have developed your investing skills.
One thing you should avoid, however, is to jump on the bandwagon. There are many stocks that are heavily hyped as the next big thing, and see their price skyrocket. Unfortunately, once the bubble bursts, the price always falls to earth and many investors lose their money. So it is very important that you invest in stocks whose companies have strong fundamentals to ensure that you will preserve your investment.
What to Consider When Buying Stocks
Once you have used your chosen strategy to make a shortlist of stocks, you can start assessing them so that you can make your final choice as to which ones you will buy. This involves taking a deeper look at the financials of the stock. Remember that when you buy stock, you are essentially investing in a business, so you want to know that you are getting value for your money.
One commonly used measure is the price-to-earning ratio, which involves taking the share price and dividing it by the annual net income of the company. It is compared with the P/E of the broader industry. If the stock’s P/E is higher than the industry P/E it is generally considered expensive, while lower P/E’s are considered cheaper. Other measures that you can look at include the price-to-sales, the dividend yield and the price-to-book ratios.
Also, make sure that you understand exactly what business the company is in. The underlying business is one of the best indicators as to whether the stock will be a good investment or not. For newer companies, you should look at their prospects. What do analysts who are tracking the company have to say about it?
What Are Penny Stocks?
One common term that comes up when talking about stock investing is ‘penny stocks’. What are these stocks and should you consider investing in them?
Penny stocks are stocks that are issued by companies with small capitalizations and usually, but not always, traded outside of the major exchanges. In the past, these stocks usually traded at below $1, which is where they got their name; these days, however, the Securities and Exchange Commission has defined ‘penny stocks’ as those that trade at below $5 per share.
While there is a perception that companies that issue penny stocks are poor quality, this is not always true. Some of them may be startups with a promising product that are seeking capital to further develop it. In general, however, businesses that issue penny stocks are usually very illiquid and subject to lower regulatory and filing standards.
If you are considering investing in penny stocks, you should keep in mind that they are highly speculative since their price may be highly volatile. Thus, you should have a high tolerance for risk since there is a big chance that you will lose your investment. In addition, look for penny stocks that are traded on exchanges such as the Nasdaq and the American Stock Exchange, since they are regulated. Avoid trading penny stocks in the over-the-counter market.
The Best Stocks for 2020
Here are some of our suggestions for stocks to buy. The majority of them are familiar names whose stocks still have potential for growth. Please keep in mind that we are not recommending these stocks, but rather are simply calling them to your attention. It is up to you to do your homework to determine if these stocks meet your investment goals.
Google, Alphabet (GOOGL)
Although Wall Street gave Google’s first-quarter earnings results lukewarm reviews, its stocks remain a strong choice for investors looking to hold on to it long-term. It has consistently enjoyed high revenue growth since its IPO and growth rates are seen to remain high into the future. Although digital advertising growth is seen to level off in the medium-term, its long-term growth is assured through next-gen services such as Google Cloud and Google Home, as well as its promising autonomous driving unit, Waymo.
Netflix, Inc. (NFLX)
Netflix has invested heavily in the past few years to build its library of original content and build its global distribution network, sacrificing profitability. 2020 is the year that this investment could finally pay off as it finally shows earning leverage. At present, Netflix is available in 190 countries and has a global subscriber base of more than 100 million. Its investment in content also puts it in a prime position to withstand competition from prospective rivals such as the Disney streaming service, which is set to launch in fall of 2023.
Micron Technology, Inc. (MU)
The memory-chip manufacturer has seen an outstanding past couple of years, as earnings soared and revenues doubled, giving investors 360% returns. Many analysts believe that Micron’s prospects will continue to be bright due to surging demand from electronics companies, who are boosting performance by increasing memory content.
Amazon.com, Inc. (AMZN)
Analysts continue to be high on the prospects of the online retailer, with some even believing that it will leapfrog over Apple to become the first $1 trillion valued company. They are also excited over its Amazon Web Services, which earned revenues of $17.46 billion in 2017, accounting for more than 60% of Amazon’s total operating revenue.
FedEx Corp. (FDX)
Analysts are becoming bullish over FedEx’s prospects, since it appears on track to generate significant earnings growth in the next few years. The acquisition and integration of TNT Express is seen to boost the income of its express segment, while long-term growth in e-commerce is expected to boost the package delivery industry in general.
Walmart, Inc. (WMT)
Analysts are bullish on the retailing giant’s prospects after it had one of its best years in 2017 on the back of faster revenue growth. WalMart was able to increase in-store customer traffic to boost comparable sales. It also enjoyed growth in its digital sales channels, outpacing rivals such as Target and Costco. The only hindrance to the continued growth of its stock is its potential buyout of Humana. Although acquiring the health insurance provider could hurt stock prices in the short-term due to negative market reaction, in the long-term, it could provide greater opportunities for Walmart to grow its health care business.
Summary
It is important to keep in mind that stock investing is not a get-rich-quick scheme. Unless you are really, really lucky you will not get rich overnight from stock investing. However, if you are willing to put in the time and the effort, you will be rewarded.
The information we have provided you in this page is intended as a starting point. If you really want to succeed as a stock investor, you have to keep learning and doing your homework. There are many online guides and courses available that you can avail of that will provide you with the resources that you need to become profitable.
It is also important that you sign up with the right broker. The best brokers will provide you with the assistance and resources that you need to succeed as a stock investor.
