I have been a direct stock market investor since September of this year. In just a short span of time, I have learned a lot when it comes to trading stocks and these are the following tips that I would share to my readers on what stocks to buy. Although some of these cannot be employed here in the Philippines since we have a small market, a lot of them will be useful in other countries.

Note, however, that I am not knowledgeable in technical analysis, a program used by traders to assess the value of the stock using graphs based on its historical value. Nevertheless, with these tips, I think you don’t need to be an expert technical analysis trader in order to successfully trade stocks.

 

  • Management - Who are the top executives of the company? Are they good in managing the business? What’s their track record?

 

  • The “P/E Ratio” - The Price Earnings Ratio or ‘P/E ratio’ is one of the most fundamental gauge in assessing a stock. It “may” somehow tell how profitable a company is. The higher the P/E ratio, the higher the profitability of the company. However, do not solely rely on this ratio since it may indicate that the stock price is overpriced.

 

  • Credit Reviews - There are only three main credit rating agencies: Standard & Poor’s, Moody’s and Fitch Rating. They usually give credit ratings to debts, bonds, probability of default and other measures of debt to assess the ability of the company to pay back a loan. A rating of AAA is the highest. Check if there’s a downgrade. A higher credit ratings mean that the company is stable.

 

  • Dividends - Buy stocks that declare dividends. Dividends are the benefits that the companies give to their shareholders for investing in their shares. There are two common types of dividends: a cash dividend and a stock dividend. However, a company that cuts its dividends is a signal that it has some liquidity problems.

 

  • What analysts say - Analysts continuously analyze a basket of stocks. These analysts work at the trading floors of some investment banks such as JP Morgan, Deutsche Bank, BNP Paribas, UBS, Barclays, etc. They predict earnings of the company based on certain data. If that company met their estimated earnings, then chances are that their stocks will rise and vice versa. They usually review sales, income, maturing debts and other balance sheet figures of the company.

 

  • Company news - Watch the news. For me, Bloomberg is the best choice. A financially troubled company would employ job cuts and plant closures. A company in litigation could also be a burden in its stock since it involves huge litigation expenses.

 

  • Economic figures - Watch the news for economic figures. How’s the inflation rate? How was the unemployment rate? Generally, a low inflation rate and unemployment rate gives a good view that the economy is doing well. What about the consumer confidence index? Gross National Product (GNP)? Gross Domestic Product (GDP)? Generally, a higher consumer confidence index mean that a lot of consumers have a strong desire to spend their money to buy things and thus helping to pump prime the economy. The same goes for both GNP and GDP, higher figures mean that economy is doing well. A stable economy could mean higher earnings for the companies hence higher value for its stocks.

 

So the next time you buy a stock, you now know what to pick.

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