How to Find Good Stocks to Buy
The key to finding good stocks is finding the right ones for you, whether you're looking for a quick short-term profit, a long-term investment or steady income with a little growth. Finding good stocks to buy isn't easy, but if you look carefully, you can find the right ones to buy in any market. Technology has made it possible; financial websites have powerful search engines called stock screeners that allow investors to become savvy shoppers before spending their investment dollars.
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Instructions
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Define your financial goals. The stock of a large, well-established company with a long history of paying regular dividends might be the right choice for someone who’s close to retirement to buy, while the stock of a small startup company in a niche market -- with huge potential for growth -- might suit someone looking for higher risk.
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Begin your search. Free online services offer information about how to explore, research and categorize stocks to find ones that meet your goals. "Until about five years ago, the data required to make a well-informed choice was so hard to obtain and interpret that most people wisely left the effort to professionals," writes Jon Markman in his MSN Money article, "Using screens to find good stocks and funds." Information-processing technology and federal Security Exchange Commission rules have made it possible for anyone with a computer and web connection to access this information.
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Pick your stock. Narrowing down the long list of available purchases might be the hardest part of finding good stocks, says Marman.
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Tips & Warnings
Look at the stock of companies with low p/e ratios. A low p/e ratio means the price (p) of the stock is low compared to the amount of money the company is earning (e). The stock of profitable companies tends to rise over the long term, but may not respond quickly if market forces are keeping the price down.
The stock of companies with good cash flow and/or low debt also might be a good investment. If interest rates rise, a company that doesn't need to borrow money can stay afloat and be more profitable than one that must pay higher rates. Markman recommends stocks with the highest possible price-sales ratios and earnings growth with the lowest possible relative strength.
CNNMoney, Bloomberg, MSN Money, Forbes and WSJ are among the financial websites offering information on researching and selecting stock.
Stock screeners score stocks on such criteria as price/sales ratio, growth and strength, but since stock might perform well in all areas or in some areas but not others, how well they will perform for an investor is unpredictable.
References
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