How to pick the best stocks to invest in? Part 1 of 2
It takes the best stock market predictions to achieve top stock market results, but choosing the best stocks to invest in is not easy. One approach professional investors and traders use is the fundamental analysis of stocks, where others prefer the technical analysis of stock market trend.
The fundamental analysis of stocks is based on criteria like Earnings per share, Price/Earnings ratio, PEG Ratio, Return on equity and Return on assets.
Whether you are looking for best penny stock to buy or any other hot stock to trade, you will find the following five out 10 fundamental key metrics very useful. They pinpoint the characteristics shared by the top performing stocks before they made huge trading profits in short term.
1. Earnings per share – EPS
Definition:
EPS is the ratio of the company’s net income to its number of outstanding shares (all stocks held by investors and the company’s insiders).
What it measures:
Earnings-per-share (EPS) serves as an indicator of a company’s profitability.
Recommended value:
No less than 80.
Interpretation:
If a company has displayed good growth over the last 5 or 10-year period, it is likely to continue doing so in the next five to 10 years.
Observation:
There are many ways to define “earnings” and “shares outstanding”. That led to different type of EPS.
2. Price/Earnings Ratio – P/E Ratio
Definition:
Ratio of a company’ share price to its earnings per share.
What it measures:
How much investors are willing to pay per dollar of earnings.
Recommended value:
A higher P/E compared to the market or industry average.
Interpretation:
If a company has displayed good growth over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years.
Observation:
There are different types of P/E but the most used is the trailing P/E calculated with the EPS from last four quarters.
3. Price/Earnings to Growth ratio – PEG Ratio
Definition:
PEG Ratio is the price/earnings (P/E) ratio divided by the projected year-over-year earnings growth rate.
What it measures:
How cheap the stock is.
Recommended value:
Less than one (PEG < 1)
Interpretation:
The value of PEG ratio
– below one is an indication of possibly undervalued stock.
– equals one suggests the market is pricing the stock to fully reflect the stock’s EPS growth.
– above one means the stock is possibly overvalued or the stock market expects future EPS growth to be greater than what is currently in the street consensus number.
Observation:
PEG ratio cannot be used in isolation.
4. Return on equity – ROE
Definition:
It is the ratio of the company’s 12-month net income to its shareholder equity (book value).
What it measures:
How profitable the company is.
Recommended value:
No Less than 15%
Interpretation:
High debt companies have higher return-on-equities (ROEs) than low debt companies.
Observation:
Relying on return-on-equity(ROE) has a downside. You will end up overweighting your portfolio with high-debt stocks if you go by ROE alone.
5. Return on assets – ROA
Definition:
It’s the net income divided by total assets.
What it measures:
How profitable the company is in relation to its total assets.
Recommended value:
ROA above 20% and higher is better. Avoid company with return-on-assets below 5%.
Interpretation:
The lower the debt, the higher the return on assets. A rising return-on-assets(ROA) usually foretells a rising stock price.
Observation:
The assets of the company are comprised of both debt and equity. The ROA is some time called ROI.
In Part 2, we will look at the stocks fundamentals like Relative price strength, Cash Flow, Financial leverage ratio, Consencus-earnings-forecast.
To boost your stock market results with high-returns picks or subscribe to Free stock picks Newsletter visit Hot Canadian, European and USA Stock Market Picks, the website of the company co-founded by Christian Bayonne.
Christian Bayonne is a do-it-yourself investor, who has been investing in stocks for the last decade. He is also the co-founder of Stock Picks for Canada, Europe, USA Markets.
Article from articlesbase.com
Penny Stock Specialist editor Frank Curzio shares his Secrets & Strategies on how to purchase the best growth stocks for under . A “Hitch a Ride” company is a low priced company that has close ties to a large-cap / high priced stock. In other words, it could be a supplier / or service provider for a large company like Google or Research in Motion. So when the large company does well, these low-priced companies also benefit or essentially hitch a ride on the back of the bigger company. In this video, I will show you a way to purchase Apple – one of the fastest growing large-cap stocks in the world – for under . This small semiconductor company is now a supplier to the new iPhone – which was launched a few months ago. If iPhone sales continue to surge, this small “hitch a ride” stock could double from the current price. About Frank Curzio: Frank is the editor of the Penny Stock Specialist. Published by Stansberry & Associates, Penny Stock Specialist is a new investment advisory uncovering the best-kept penny stock secrets. Frank Curzio also hosts S&A Investor Radio, a weekly podcast offering unscripted commentary and interviews from Wall Street to Main Street. Also check out the Penny Stock Specialist Facebook page: bit.ly
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