Now that you have determined to invest in the stock market. It’s time to determine and pick stocks to buy. Start with understanding your long-term goals with investing and use these tips to help you choose which stocks to buy.
Pick stocks with a solid track record
Stick with what you know. Find companies you are familiar with, they can be potential stocks to invest in. Once you have decided what companies you want to focus on, follow trends and third-party resources for the company. Staying up-to-date with corporate press releases and investor presentation reports would help you understand the general trend.
Some companies or even industries are hard to understand, some require thorough research, and some might have complicated business models. If you’re having difficulty grasping exactly what it is they’re doing or how they make money, those stocks are best avoided.
Tip: Investors can consider investing in Junior mining stocks to start their stock journey slow and steady after their research and due diligence.
Seek out the value of the company
Take charge of your investments and evaluate the following aspects while examining the value of the company:
Company’s performance relative to its peers
Look at how well the company is performing compared to its competitors through the cash flow and expansion of their projects. For a fair comparison, compare the companies with similar market capitalization during a certain period.
Calculate this ratio to understand the financial well-being of the company. You can calculate the debt-equity ratio by dividing the total liabilities on the company’s balance sheet by the total amount of shareholder equity. A ratio of less than 0.3 is a good indicator for low-risk tolerance investors.
The P/E ratio is a valuation metric that measures how well a stock’s price is doing relative to the company’s earnings. It tells you whether a stock is undervalued or overvalued. It gives insight into a stock’s market value or its worth according to financial markets.
Dividends represent the return of a portion of a company’s profits to investors. As well, a company that pays dividends to its investors consistently is considered to be a healthy company. It reflects that the company is expanding its operations and distributing profits to its investors. On the contrary, watch out for the companies that pay out high yields as that can be a sign of the company not utilizing the capital for their expansion. Although, dividends can be a sigh of relief during market downturns.
Efficient management plays a huge role in leading the company’s growth in the market. Good management and great leadership would allow a company to stay stable and grow more. You can browse both qualitative factors (company culture, employee and customer satisfaction, brand recognition and loyalty) and quantitative factors (revenue growth, profitability, cash flow, debt levels) for a better feel of the company and build a personalized approach towards investing.
Decide the duration and how long you want to hold
Investments held for the long-term goals tend to yield better results than the shorter ones. This is because the average returns over the years often offset short-term risks. The average stock market return approximates about 10% per year.
It’s good practice to avoid the habit of compulsively checking how your stocks are doing several times a day, every day unless you’re trying to be a day trader to gain profits successfully.
Voila, you now know how to pick stocks to buy.
The next step is to choose your investing platform and start investing. Start here with us at Zimtu and look at our holdings to begin your research on what stock to pick to buy?