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Stock Tips on Picking Stocks

Stock Tips on Picking Stocks

In fact, picking stocks is to pick companies that you believe are sort of undervalued by the stock market. Thus, the biggest tip for you to pick stocks is to do some research on the stock. The research should include obtaining a clear understanding of the company’s business and financial health, societal impacts that could change the market for its products, as well as the competency of the management of the company.

1. Research on the company.

Firstly, you need to do some research on the company and understand how the company makes money. Cash flow is essential for all business, and operations are the deciding factor that determine how much cash comes into the business. Therefore, it is imperative to understanding how a company makes money prior to your investment. This is a lesson learned by many investors painfully from the late-1990s tech-stock boom. At that time, technology companies sold for high values, however, they didn’t have a business model that can make money consistently. Consequently, a lot of companies went bankrupt and left investors with nothing.

2. Review annual reports and SEC filings.

Publicly traded companies must take quarterly filings with the SEC (Securities and Exchange Commission). The filings disclose the company’s major events and associated risks. The filings might also include pending lawsuits, change in regulations, etc. Reviewing of the annual reports of the company is equally important since it can provide important financial information about the company. Generally, it is wise to avoid buying stocks from companies that have a lot of debt and of course those that have debt more than equity. The return of equity represents the profit of the company as a percentage of the company’s total value of stocks. You can compare the return on equity of several companies in the same industry and learn about the efficiency of operations as well as the potential profit of owing the stock.

3. Pay attention for societal trends.

Last but not the least, you should look for stocks from companies that are likely to grow as changes in society and avoid companies from obsolete industries. Such information and trends could be collected from TV news or simply observing people’s behavior. For example, if one observed the public’s interest in Apple’s products and bought stock in Apple might be able to make considerable profits. However, you should also sell your stocks in companies that are still selling undesired products. For instance, the value of Crocs shoes stock dropped fast due to the decline in the brand’s popularity.

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