Four Methods for Choosing the Right Stocks

There are about 2,800 stocks listed on the New York Stock Exchange and more than 3,000 stocks listed on the NASDAQ. There are thousands of other stocks listed on foreign exchanges, or not listed at all, but instead traded Over-the-Counter (OTC). With so many choices, it can be hard to pick the right stocks.

Fortunately, we are going to go over four methods you can use to select stocks. Whether you are looking for a blue chip, a profitable penny stock, or another type of stock, these four stock pick tips will help. Of course, while this list is a great start, it’s not exhaustive.

Look at the Fundamental Financial Information

Many investors start by looking at the company’s fundamental financial data. For example, how much revenue is the company generating? What does revenue growth look like?

How about profit margins, debt, and the price-per-earnings ratios? There are many different factors to consider when poring over a company’s financial sheet. Make sure you give the fundamental financial information a good, long look.

Choosing the Right Penny Stocks

Choosing the right penny stock can be difficult. However, the rewards for choosing that right penny stock are tremendous. Consider, for example, that Apple was once a penny stock, but now the company is worth hundreds of billions of dollars.

So how do you find the next Apple? First, consider the company’s leadership. Apple was on the verge of bankruptcy until Steve Jobs returned.

Second, consider the company’s products and what they could mean for the future. Apple turned things around with the iPod. Now, the company makes most of its money off of the iPhone, rather than laptops and computers.

With penny stocks, the “fundamentals”, like revenue and debt, might not look very attractive. However, that doesn’t mean that they are bad investments.

What Does the Product Pipeline Look Like?

Companies often have tight lips when it comes to future products. Yet, leaks happen, and companies will often hint at their focus and vision even if they will not spill the details. Make sure you pay attention to what products might come in the future.
Ten years ago, Microsoft was more valuable than Apple. At this point, Apple was no longer a penny stock, instead having grown tremendously, locking up huge returns for savvy penny stock traders. When Apple announced its intent to enter the cell phone market with the iPhone, Microsoft CEO Steve Ballmer actually laughed them off.
Now, Apple is much more valuable than Microsoft.

Be Diverse and Spread the Love

Some investors develop “tunnel vision”, focusing on one industry, or a limited number of companies. Having a primary focus is great. Nonetheless, it is important to diversify as well. When you are picking stocks, make sure you search far and wide for good deals.

A diversified portfolio will be exposed to fewer risks. This is true for penny stocks, blue chips, and everything else. If you invest in one industry, and that industry suffers a downturn, you could suffer considerable losses.

Consider the “Dot-Com” bust in the late 90’s or the downturn in the oil industry. Investors who were overexposed to these industries suffered big losses. So, make sure you search far and wide for the right stocks.

Final Thought

There are so many stocks that narrowing down the right stocks for your portfolio can be tricky. However, with patience, dedication, and effort, you can find penny stocks and other stocks that can produce great returns.

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