Not sure where to start with stock selection? Here is a simple five-step strategy.
It’s no surprise that “How to pick a stock?” consistently ranks as one of Google’s top searches.
With more than 2000 companies on the Aussie share market, almost 2,500 on the US market, and tens of thousands more across global markets, picking shares can feel like a guessing game to some.
But there is a way to take the guesswork out of picking an investment.
A five-step strategy, backed by the tools and resources of your broking platform can help you identify stocks with strong growth prospects, and then narrow down the choice.
1. Observe trends
Successful stock picking starts by tapping into your powers of observation.
Peter Lynch, one of the world’s most successful investors, points out that investors who become observational can discover successful companies before the professionals do.
How does it work? Well, let’s say you’ve noticed more electric vehicles (EVs) on the road, or come across news reports about countries planning to reduce carbon emissions.
These basic observations can start you thinking about the sectors that could benefit from this trend. In the example I’ve given, you may decide to focus on the electric vehicle (EV) industry.
2. Identify if a sector is growing
When you’ve identified a sector that can benefit from a trend, consider if it is in a growth phase. Regulatory change and government support are key factors to look for here, as they can really put the wind in the sails of a sector.
Sticking with the example of EVs, we know that governments across Europe are banning the sale of new petrol and diesel cars from 2035. Here in Australia, the ACT government has applied a similar deadline. This sort of government mandate will lend support to the EV industry.
Your stock trading platform can help too. The Moomoo app, for instance, features a sector rundown showing returns across different industries, or investment themes.
3. Look for a company growing market share
By this stage, you have identified a trend, and the industries that will benefit. Now it’s time to dig deeper, looking for companies within the sector that are expanding their market share.
Again, government support and stimulus can be a factor to watch for.
Sticking with our example of the EV market, the Chinese government recently unveiled $US72 billion worth of tax breaks for EVs. This will likely support local manufacturers such as BYD. Tesla has also benefited from this support, as well as from China’s government offering perks, such as access to cheap land. All in all, we’ve seen deliveries (sales) of Teslas and BYD dominate the EV landscape, with both growing market share.
The Moomoo app features Company Operating Data, showing Total Vehicle Deliveries, which allows an investor to compare, which EV maker is selling more EVs.
4. Take a deep dive into a company’s financials
As an investor, you want to be confident that a company is growing its revenue and profit, and maintaining healthy cash flow.
While this sort of data has traditionally only been available to institutional investors at the click of a button, the more innovative broking platforms are now making this information available to retail investors. Even better, Moomoo presents key financial metrics in pictorial form. So it’s easy to see at a glance what’s happening with a company’s revenue, profit and other key figures.
5. Check what the experts are saying
You’ve done your research, now head to your share trading platform to see what the experts are saying about a particular stock. This goes beyond the standard buy, sell or hold recommendation.
Moomoo’s platform provides ‘price targets’. This shows the likely future value of a stock, based on the consensus of a broad range of analysts.
It’s an especially useful tool as price target data is forward-looking rather than based on past performance. Of course, it’s a prediction, not a guarantee, but it can be the final piece of intel you need to make an informed decision on which stocks to buy.
Investors who open a new Moomoo account receive 180 days of zero brokerage on any US or Australian stocks plus free stocks valued up to $6100.
Get stories like this in our newsletters.
Credit: Source link