When it comes to stock, not all of it is created equal カヴァン・ チョクシ. There are a lot of factors you need to consider when choosing a stock. In this article, let us look at some of the things you need to consider when choosing stocks.
What is a Stock?
Before we talk about choosing stocks, let us first discuss what a stock is. A stock represents ownership in a company. If you buy one share of that particular company’s stock, you become a partial owner of the company.
What Are the Different Types of Stock?
You can choose from two types of stock: common stock and preferred stock.
- Common Stock: A common share gives the owner the right to vote on important decisions within a company. This includes electing board members or choosing other major policies that would affect the company’s business. The owner also receives dividends every year, which is the company’s share of its profits after all expenses have been paid.
- Preferred Stock: A preferred stock does not give the owner voting rights within a company, but it comes with a greater dividend than common stocks. Preferred stocks also have a higher priority for receiving dividends and assets in case of liquidation.
What To Look For In A Quality Stock
When choosing a stock, look for these qualities:
- Stability and Consistency – Look for stocks that have been stable over the years, with consistent revenues and earnings per share. This would mean that your returns will most likely be stable as well.
- Financial Health – A company’s financial health is important because it ensures that it can still operate even without good stock prices. Look for companies with low debt, a high level of liquid assets, and stable income. The company should also have no problems meeting its short-term financial obligations such as loans and salaries.
- Financial Strength – A strong balance sheet means the company is prepared for the future. The stock should also survive and prosper even during recessions and economic downturns. Look for companies with a high credit rating and the ability to generate cash flows in both times of plenty and want.
- Growth – Look for stocks that will grow over the long-term; at least 5% annually or more is ideal. In addition, make sure that the company has room for growth in its industry.
- Market Share & Industry Leaders – Find companies that are at least market leaders or have a high percentage of their respective industries’ market shares. If you invest in a company that is already leading in its field, then any future success will mean an increase in the value of your portfolio.
- Undervalued – Sometimes, you can find a stock that may have been beaten down due to negative public perception or the company’s past problems. Although these undervalued stocks come with greater risk, they also carry greater potential for growth in the near future. Look for these kinds of stocks and make sure that you do proper research before buying.
Not all stocks are created equal. There are a lot of factors you need to consider when choosing a stock. Make sure you do your research and talk to an expert before making any decisions.