Basic Analysis of Stocks
Many people have different methods of picking stocks. Key stock fundamentals are important to your success in investing. Some argue that one method is better than the other, but all in all most agree that there are key rules that everyone should consider when picking stocks. These are not concrete and one must always use their own judgment when picking stocks. However, if you follow these simple rules you’re in much better shape that most people since a lot of new investors don’t want to put in the time to research stocks. Everyone wants to buy the hottest and most popular stock without much effort. However, another golden rule is not to chase performance. I have outlined list that you should follow as part of your stock fundamentals criteria.
A key stock fundamentals is earnings. It is one of the most important gauge one should look at before investing in stocks. You want a company that is making money year in, year out. Earnings is vital to a company’s success, without consistent earnings a company will fail and eventually lose money. Always look for companies that are making a lot money selling their products and services. Make sure the company’s earnings are increasing quarter after quarter and year after year. That’s a growth sign which tells us that the company is heading in the right direction fast. People need their product or services so they’ll continue to buy from that company which will increase earnings each year. Most investing sites will have this information since it is so important. Now let’s move on to Sales, which is another critical aspect of your stock fundamentals that you should consider.
A company sales figure is another important criteria that should be looked at closely. Look for companies that are increasing their sales quarter after quarter and year after year. You want a company to continue selling their good and services. People will buy products from a company that produces or manufacturers good quality products.
If a company decided to cut cost and make their products cheaper, they will in the not so distant future fail. Sales will go down and so will its earnings. You don’t want to invest in such companies since their products are cheaper and of lower quality. I’m sure you’ve probably have seen products that you purchased at one time or another and said to yourself, wow I remember when this was made much better. You want a good quality product. Those products will sell all the time since people trust and come to rely on that company. A company’s reputation is vital to its success.
Let’s take a closer look at a company like Caterpillar. You know they make good quality outdoor machinery. You seen those big trucks and big heavy duty equipment that are always working on construction sites or moving mountains of dirt for mining. They use the best materials and the best people are behind the scenes manufacturing those gigantic products. They are a truly a great company and one of the best in the world. Look at their chart and read the company profile and you’ll see a great company growing year after year. This is a company that one should consider for their portfolio. So far we’ve covered both earning and sales, which are critical components of your stock fundamentals arsenal.
You want the best company, you want it to be an industry leader. You want to pick the very best companies in a sector or category. We can use Microsoft as a perfect example. Microsoft is the industry leader when it comes to software (Software sector). However, there are many others such as Oracle, Adobe and Apple computer, but Microsoft is the very best. Some people may beg to differ since others are climbing to the top like Apple. So Microsoft may not remain there long, but for now they are the best.
Another industry leader is a Toyota (Auto & Parts sector). Toyota happens to be one of the best car companies in the world. When you invest in companies like Microsoft and Toyota, you can’t lose. They eventually will make you a lot of money, but one has to be patient. Remember that these companies are big so they won’t grow as fast. However, they are stable companies that will remain world leaders for a very long time. These companies will continue to innovate and create new products that will amaze their customers and their competitors.
You can also look for companies that are developing new products and services. The next leaders that are inventing new ways of doing things or new products that will make our lives better. You need to look for those companies where sales and earnings are growing faster than their competition. As I mentioned above look for companies like Apple. They have products like the ipod and now the iphone. What company can compete with such innovative products? Check out their stock chart and you’ll see how industry leaders make a difference. Keep your eyes and ears open all the time and watch for the latest and greatest inventions. Then invest a few dollars in that company, watch it closely and don’t panic if the stock goes down. Great companies will always bounce back. Actually take the opportunity when the stock goes down in price to buy more shares. Isn’t this easy? It’s all common sense. All you have to do is stick to stock fundamentals when picking stocks.
just keep these important facts in mind. Don’t chase a stock just because everyone is buying it. The stock market always corrects itself (goes down) because it has to shake out all the noise and excess. Take this opportunity when everyone is selling to buy more of your favorite stock at a discount. The market will always rebound, you just have to be patient.
I strongly believe that you should keep some money aside and wait for the right time to jump on a stock. Patience and discipline are vital to your investing success. Do not let your emotions dictate when to buy or sell a stock and the most important lesson of all, don’t follow the crowd. There are thousands of companies out there so take your time, keep reading and learning all the time. Stick to the basic stock fundamentals of investing and you’ll be fine.