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Things to Consider When Selecting Stocks

You’ve decided to invest in the stock market to increase your assets and accumulate long/short-term wealth. While practices like keeping an eye on the stock market and adopting investment strategies are ideal to reach your goals, one of the first hurdles new investors must overcome is picking the right stocks. With plenty of options to choose from, it can be difficult to determine which options will yield the best return.

Practice often makes perfect when it comes to selecting stocks, but here are a few factors to keep in mind before investing your hard-earned cash into an organization.

Familiarity

Investors must be able to keep an eye on the company/industry they’ve purchased stocks in to determine when to buy or sell shares. Therefore, selecting a company or product in an industry you’re familiar with (at least in the beginning) would be ideal. This not only narrows down your options to choose from but often makes tracking the stock value easier.

For example, if you know a lot about the latest smartphone technology, you might be interested in investing in Apple, T-Mobile, or Verizon. Since you’re already interested in these telecommunication companies keeping up to date on the latest trends and news will be easier. You’ll essentially have a clearer understanding of when to buy more stocks (a new product or technology is developed), hold steady, or start selling (products or technology become outdated).

Familiarity may give you an advantage when knowing which stocks to select, but it is still recommended that you do research to ensure that the companies you’re considering utilizes tools like accounting, payroll, and revenue forecasting and planning software, to effectively manage their finances. These tools can be offered by a variety of businesses like ADP, Chase, revVana, and more based on the size of your business and number of employees.

Earnings Growth

As you begin to dig deeper into brands to invest in, earnings or sales growth should be a top consideration. This is essentially a calculation of how much the company is earning in a given period. Companies that utilize tools and resources to maximize sales and report increased revenue should be highest on your list. Even a minor increase in revenue over time can be worth considering as this means the company is taking steps in the right direction.

Stability

The stock market, as you’re already aware, fluctuates from day to day and year to year. One minute a company’s value could be doing well and rising and the next it could decline. Jumping ship and selling your stocks would be ideal if the value was on a downward spiral with no signs of improving over time. However, if a company can show that they are able to remain steady despite internal and external factors (or at the very least, bounce back quickly), then they may be worth considering.

Assets Vs. Debt

Running a business of any kind is going to incur some debt. Just as with your personal finances, however, the more debt a company accumulates, the harder it becomes for them to continue operating and growing. On the other hand, a company with manageable debts as in comparison to their assets or equity are considered low-risk and may be worth considering for investment purposes.

Company Reputation

As cancel culture continues to increase and consumers learn to make more informed purchasing decisions, a company’s reputation and environment can mean the difference between a good and back stock pick. Before deciding on an individual stock, it is ideal that you do your due diligence on the company. Most of this information can be found on the company website, employee/consumer review sites, news/blog articles,  and agencies like the Better Business Bureau.

Who are the leaders of the organization? What are the company values and mission statements? What type of environment do they provide for their employees? How does the staff feel overall about working for a particular company? What do customers have to say about the quality of the products and services they receive? Have there been any scandals that you need to be concerned with? More importantly, what has the company done to invest in the communities they serve?

Dividends

Whether you like the idea of getting periodic payments or you’d prefer to have money to reinvest in the market for long-term financial goals, dividends will prove beneficial. A cash dividend (most common) is essentially cash payments per-share paid out by the company to shareholders.

A company may decide to pay 15 cents per share. If you had 10 shares in the company, that would give you an additional $1.50. Though it may not seem like much, having a portfolio with multiple dividend payouts can add up. On the contrary, a stock dividend is when a company decides to increase the percentage of shares you presently hold. So, in this case, if you had 10 shares and the company issues a stock dividend of 10%, you’d now have 11 shares in the company.

As you can imagine, a company that is able to distribute cash or stock dividends to its shareholders is likely in a strong financial position and would be worth investing in.

Investing in the stock market is certainly a risk. However, with well-thought-out strategies, practice, and the selection of the right companies to invest in, you can reduce those risks and succeed. Hopefully, this has given you a bit more insight into how to select the best stocks for your investment portfolio.