Need to improve your stock picking skills?
Here are six tips to help you pick better stocks.
Avoid Overpriced Stocks
All too often, by the time we hear about a stock, we’re
too late to the party. That’s why paying attention to valuation is
important. Although the price/earnings ratio (P/E) is the most popular
valuation gauge, price/sales (P/S), which compares share price to the
last 12-months per-share sales instead of earnings, is more reliable.
Stick with P/S values between three and five if you’re looking for
growth stocks (e.g. Netflix), or below two if you want to invest in
beaten-down value stocks. You can find the price/sales ratio for most
stocks in the Valuation section on MarketWatch (www. marketwatch.com).
“Operating cash flow” is simply the cash that flowed into, or out of, a
firm’s bank accounts resulting from its basic operations. It’s much
harder to fudge cash in the bank numbers than reported earnings, which
are subject to all sorts of manipulation. Check per-share operating cash
flow in MarketWatch’s Valuation section. Stick with stocks with positive
numbers, meaning cash is flowing in, not out. For this test, the amount
Stocks go up when mutual funds and other institutional buyers pile in.
However, since they’re buying hundreds of thousands of shares at a time,
these big players need high trading volume stocks. Look for stocks with
at least 250,000 shares trading daily, and those trading more than one
million shares daily are your best bests. You can see the trading volume
in MarketWatch’s Overview section.
Your stock’s great growth numbers will go unrewarded if nobody notices.
Stock analyst reports are how many investors, especially institutional
buyers, learn about a stock. Thus, sufficient analyst coverage is
necessary. You can see how many analysts are covering a stock in
MarketWatch’s Analyst Estimates section. It’s okay to buy stocks with at
least four analysts making buy/hold/sell recommendations, but more is
better. Look only at the number of analysts, not whether there are more
buys than sells, etc.
You’ll always do best by focusing on stocks with solid fundamentals,
which includes items such as profitability, financial strength, etc.
Rather than analyzing all that on your own, growth stock guru Louis
Navellier will do the heavy lifting for you. Simply enter your stock’s
ticker into his Portfolio Grader (https://goo.gl/Fr2SX5)
and check the Fundamental Grade. Stick with stocks graded A, B, or C.
Stocks that have racked up consistently strong sales growth numbers are
your best bets for future price appreciation. Again, following our work
smarter, not harder, mantra, let Morningstar do the analysis. From
Morningstar’s home page (www.morningstar.com), enter your ticker symbol
and scroll down to the Premium Analyst Report section. While most items
require a Premium subscription, Morningstar displays a Growth Grade at
the bottom for most stocks. Your best bets are stocks graded “A” or “B.”
These tips will help you pick better stocks, but following them doesn’t
necessarily mean that you’ll make money. Many other factors come into
play. Do your due diligence. The more you know about your stocks, the
better your results.