How to Find the Best Stocks to Buy

Reviewed: May 28, 2014
By FinanceWeb

When discussing the best stocks to buy for your portfolio, it is best to begin with the golden rule of what stocks you should not buy. If a stock is already a trend, then you are usually wasting your money buying into it. In other words, if people already know about a stock, then its earning potential has probably already been maximized. The best kind of stock to buy is one that you find using your own research methods, and not one that you buy based on a tip from a broker you know.

Buying stocks is not as difficult as it is made out to be, especially if all you are looking to do is generate an appreciable income. It takes some time to be able to spot a real winner, but that does not mean that you cannot go out there and hit a home run on your own. Any investor who takes the time to do the necessary research can find a stock that will generate a profit either in the form of an annual dividend, or as stock that is bought and then sold.

Try The Companies You Already Know

When you are trying to find that next great stock buy, you only need to look as far as the label on your soft drink or the tag on your shirt. Most people take the products they buy for granted, but your own consumer patterns could bring you success in the stock market.

If you have been buying the same brand of shirt for decades, then that company has obviously been doing something right. Get online and see what kinds of earning trends the company’s stock shows. If it has a history of strong earnings, then you just found a security to invest in.

After you have used the shirt off your back to determine what stock to buy, all you have to do is look at the other companies you have trusted for years and follow the same pattern. You will find that a company’s longevity is directly tied to its ability to make a profit for its investors.

Read The News And Use That To Your Advantage

The worst thing you can do when it comes to buying stocks is to speculate on which stocks will win and which ones will lose. Why speculate when you can find the catalyst for growth in your local newspaper or on your favorite blog?

When you read about a company that has a great idea that could change the marketplace, then start doing some research on that company’s stock. You may find a continuous trend of respectable dividend yields for the past few years that have gone unnoticed by many investors because the company has not experienced any significant growth.

A dividend yield of five percent for the past three years could easily become eight percent or more once this new product hits the market. Since the company has already shown growth the past few years, your exposure to risk is reduced. If this new product pays off, then you could see a significant return on your investment.

Look At The Earnings And Not The Cost

Sometimes investors are just looking for a stock to buy that is low on risk and offers an annual payout. If you want to find a stock that will generate you an annual dividend, then look at the stock’s earnings history and not the stock’s cost. The cost of a stock can fluctuate, but if you see an upward trend in dividends, then that is your stock.

One of the things that scares investors away from some of the blue chip stocks is the initial cost of those securities. But if you spend $30 on a stock that generates you a $6 per year dividend, then the stock pays for itself in five years and the rest is pure profit.

Always Do Your Homework

Never buy a stock based on a guess or a speculation, unless your goal is to lose money. If you are looking for the best stocks to buy, then research the company and determine its potential for generating revenue. Remember that your initial concern is whether or not a stock will pay you a dividend, and not necessarily how much the stock costs.