Some Simple Ways to Pick a Solid Stock
If you are starting to put your money in the stock market, you do not want to just pick any stock. Lack of a strategy when buying stock is like going to the horse races and betting on the first horse that gives you a feeling in your gut. Before playing the stock market, a successful investor would develop a serious plan of action when investing their money. With this article, we will give some simple ways to pick a solid stock that would reduce risk and grow your money over time.
The first thing to do when picking a company’s stock is to pick a company that you are familiar with their services and products. Preferably, you want a company that you have had a good experience as a patron yourself. You do not want to buy a stock of a company that left a bad taste in your mouth. That way when you purchase a stock, you can solidly recommend its services and products. Basically if you are going buy stock in a company, you should believe in it yourself.
The next thing to do in selecting a stock is to see what credible news sources are saying about the company. Some of the best news sources concerning the stock market are Investors’ Business Daily, CNBC, Forbes Magazine, Bloomberg and of course, The Wall Street Journal. Now, you can do an internet search but be very cautious of obscure sources. Try to stick with the finance sections of well-established websites.
Look for positive headlines about the company as well. Is the company about to expand or is the company about to make some significant layoffs? Check to see if the company has recently announced a big deal. On the other hand, is the company in the news because of a major lawsuit against it? You want a company that constantly stays in the news for good reasons.
Most important of all, you want a company that is generating revenue and making a substantial profit on that revenue. This is when you will have to do some serious research. If the company is an online service, see if it has a solid subscriber base. If the company is a retail store, see if they are continuing to make sales. If the company is a bank, see if they are receiving substantial interests on issued loans.
To figure out a company’s revenues and profit margin, you will have to look at earnings reports. Every quarter (three months), companies release their earnings reports in which they give intricate details about their business. You can obtain these reports directly from the company and many companies post those reports on their websites for your convenience.
Within the earnings report, you will find how much revenue they are generating, money from sales and services, expenses, and the most significant, how much profit the company made if they have made any profit at all.
It is important to compare a company’s earnings reports throughout several quarters. Of course, a solid stock would have increasing sales, increasing revenue, and increasing profit margins. Usually, they will announce the increase or decrease from the previous year in the earnings report.
The earnings report is so important that depending on what are in them, the price of a stock could drastically rise or fall on the day of its release. A simple formula is that revenue minus expenses equals earnings. Obviously, a solid stock would have positive earnings which would be a profit.
revenue – expenses = earnings
So in order to select a solid stock, make sure that you are familiar with the company, that the company has positive feedback and positive headlines, and that the company is increasing their revenue and profit margins.
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