Skip to main content

Indicators of a Great Stock

For investors, finding a stock to buy can be some of the most fun and rewarding activities. It can also be quite attractive, provided he or she ends up buying a stock that increases in price. Below are five tips to help you identify stocks that have a good chance at making you money.

Profits

The very essence of a successful company is its ability to make a profit. In fact, profit is the single most important financial element of a company. Without profit, a company goes out of business. If a business closes its doors, private jobs vanish. In turn, taxes don’t get paid. This means that the government can’t function and pay its workers and those who are dependent on public assistance.

Profit is what is left after expenses are deducted from sales. When a company manages its expenses well, profits will grow.

Sales

Looking at the total sales of a company.

A company (or analysts) can play games with many numbers on an income statement; there are a dozen different ways to look at earnings. Earnings are the heart and soul of a company, but the total sales (or gross sales or gross revenue) number for a company is harder to fudge.

It’s easy for an investor — especially a novice investor — to look at sales for a company for a particular year and see whether it’s doing better or worse than in the prior year. Reviewing three years of sales gives you a good overall gauge of the company’s success.

Liability

All things being equal, most investors would rather have a company with relatively low debt than one with high debt. Too much debt will kill an otherwise good company.

Because a company with low debt has borrowing power, it can take advantage of opportunities such as taking over a rival or acquiring a company that offers an added technology to help propel current or future profit growth.

Notice that you aren’t talking about a company with no debt. A company with no debt or little in the way of liabilities is a solid company. But in an environment where you can borrow at historically low rates, it pays to take on some debt and use it efficiently.

Secondly, notice that liabilities are an issue. It isn’t always conventional debt that may sink a company. What if that company is simply spending more money than it’s bringing in? Liabilities or “total liabilities” takes into account everything that a company is obligated to pay, whether it’s a long-term bond (long-term debt), paying workers, or the water bill. Current expenses should be more than covered by current income, but you don’t want to accumulate long-term debt, which means a drain on future income.

Also, in some industries, the liabilities can take a form that isn’t typically conventional debt or monthly expenses.
To discover some good parameters of acceptable debt, look at the company’s financial ratios on debt to assets.

Bargain price

You can look at the value of a company in several ways, but the first thing you should look at is the price-to-earnings ratio (P/E ratio). It attempts to connect the price of the company’s stock to the company’s net profits quoted on a per share basis. For example, if a company has a price of Rs15 per share and the earnings are Rs1 per share, then the P/E ratio is 15.

Generally speaking, a P/E ratio of 15 or less is a good value, especially if the other numbers work out positively. When the economy is in the dumps and stock prices are down, P/E ratios of 10 or lower are even better. Conversely, if the economy is booming, then higher P/E ratios are acceptable.

A stock may also be a bargain if its market value is at or below its book value (the actual accounting value of net assets for the company).

Dividends


 A consistently rising dividend is a positive sign for the stock price. The investing public sees that a growing dividend is a powerful and tangible sign of the company’s current and future financial health.

A company may be able to fudge earnings and other soft or malleable figures, but when a dividend is paid, that’s hard proof that the company is succeeding with its net profit. Given that, just review the long-term stock chart (say five years or longer) of a consistent dividend-paying company, and 99 times out of 100, that stock price is zigzagging upward in a similar pattern.

High barrier of entry

A high barrier to entry simply means that companies that compete with you will have a tough time overcoming your advantage. This gives you the power to grow and leave your competition in the dust.

Low political profile

History shows that companies that are politically targeted either directly or by association (by being in an unpopular industry) can suffer. There was a time that holding tobacco companies in your portfolio was the equivalent of garlic to a vampire.
All things being equal, you may want to hold a stock in a popular industry or a nondescript industry rather than one that attracts undue (negative) attention.

Favorable megatrends

A megatrend is a trend that affects an unusually large segment of the marketplace and may have added benefits and/or pitfalls for buyers and sellers of a given set of products and services. A good example of a megatrend is “the milenials of India”; India is ranked no1 in youth population i.e people in the age group of 20-30. Those companies that provide services and products for youth would have greater opportunities to sell more of what they provide and would then be a good consideration for investors.

Comments

Popular posts from this blog

Top Indian Penny stocks for week 23/9/2017

This week has been an exciting one for Indian penny stocks. So without further delay, lets look into the list. These have been the profitable penny stocks this week. And let us know in the comments section on your suggestions for next week’s. for more info, do check out these articles Best Indian Penny Stocks of 2016 Profiting with Indian Penny stocks How to make Huge Profits with Indian Penny stocks

Top Indian Penny stocks for week 23/7/2017

This month had been a exciting month for Indian penny stocks. So without further delay, lets look into the list. These have been the profitable penny stocks this month. And let us know in the comments section on your suggestions for next month’s. for more info, do check out these articles Best Indian Penny Stocks of 2016 Profiting with Indian Penny stocks How to make Huge Profits with Indian Penny stocks

Top Indian Penny stocks for week 1/9/2017

This week has been an exciting one for Indian penny stocks. So without further delay, lets look into the list. These have been the profitable penny stocks this week. And let us know in the comments section on your suggestions for next week’s. for more info, do check out these articles Best Indian Penny Stocks of 2016 Profiting with Indian Penny stocks How to make Huge Profits with Indian Penny stocks

Indian Penny Stock Pick: Sunil Hitech Engineers Ltd

Shares of Sunil Hitech Engineer s surged nearly 10 per cent on Thursday after the company informed the bourses that it had been awarded four road projects worth of Rs 935 crore in Maharashtra on the EPC mode.  View Full news here. Penny Stocks are low value stocks and majority of companies belongs to Penny stock category are either Loss making companies or companies which lack Fundamentals and credibility.Investor sometime mistakes all low value company as penny stocks but this is not true.In most case the face value of company is Rs 10 but some company will reduce the face value to Rs 1 in that case their stock will also be 1/10 th of similar company which have face value of Rs 10.fo ex if company A has stock value of Rs 8 and face value Rs 10.Another company B has the same stock value of Rs 8 but its face value is Rs 1.In this case if we equate the face value of company B ie face value *10 and stock value also had to multiply by 10 so stock value become Rs 80 So i...

INDIA STOCK MARKET 2016 REPORT

#Crude Price Doubles- 2016 Started with Fall of Crude Price. The consensus target among Large Investment banks like Goldman Sacks, Barclays, RBS etc for Crude price Target was 10-15$, well as we see it today, crude prices have doubled from its February low of 26$. Infact commodities have been the best performing stocks in 2017, where Nifty metals is up 40% for the year. This has happened on backdrop of lower Chinese demand. #Brexit- In july Majority of people expected that Brexit wouldn’t happened and Incase it did market’s would crash as that would be the start of fall of EuroZone. Well Brexit did happen, but FTSE has rallied 20% since then and is very close to its lifetime high. India's economy surpasses that of UK #Donald Trump – The odds of Hillary Clinton winning was 91% till 3 days before election day. The Market was expecting that if Hillary wins, the market will rally and incase Trump Wins, markets would Crash. Well Trump won, and US Markets went on to hit...