Selecting a stock can be a challenge. Finding one that can check all the boxes in your rule book may seem impossible but with some effort some gems can be found.
I usually start by looking at my stock portfolio to see where I am currently lacking strength. Once I determine the market sector I am weakest in I start by researching the companies that are in that market. I start by finding out who the big player is. For example, everyone knows that most powerful retailer is Walmart and fast food restaurant is McDonalds. It doesn’t mean that I stop there, but I want to make sure I start by looking at their stocks before moving on to the next one. Once I know where the major player is positioned in the market I start to look at the competitors. What are they doing that might give them a competitive advantage.
As mentioned earlier I use the Google Finance tools to assist me in making my decisions. Typically I add the stocks to a temporary portfolio so I can track the effectiveness.
What I look for is the following.
- How long has the company been in business. I want at least 25 years.
- How Long have they been paying dividends? Again I want 25 years though I will compromise to 10 years if my research is favorable.
- The dividend percentage does not decrease. I will make an exception if there is a particular reason for lowering the dividend but this is a pretty important part of my examination.
- Stock price. Unfortunately I have to look at the price of a stock before buying. I really do not like to invest in stocks that are more than $120. I tend to avoid stocks that are below $20 just because of the cost to making the trade.
- Price to Earnings: P/E – I am looking for stocks that are between 10-20. My preference is a PE of 20 which allows me to double my money every 5 years.
- Earnings Per Share: EPS – I am looking for 3 – 6.
- Market Cap – The larger the market cap the better. I prefer businesses that are in the billions.
- Countries – The more countries the business sells to the better. I feel that this insulates the company from market drops
- Debt – How much debt does the business have. Is the debt short term or long term. Short term debt is better than long term. The nature of the debt is also important. If the company has purchased its largest competitor it is probably a good thing.
These are just some of my rules in selecting a stock. Coming up with your own set of rules is an important