Every individual who has an interest in the stock market wonders how can he learn the strategy to pick best stocks and be wealthy. It is not an easy task nor is it a tedious task. It requires good analysis and diligence to pick up the best from all that is available. In this article, we will tell you how you can pick best stocks for your portfolio following a simple rule.
Look for growth in terms of EPS and Book Value:
The first and foremost indication of a growth momentum in any stock is its EPS. EPS is the earnings per share i.e. for each share that a shareholders have, how much does a company earn for each share.
Then comes the book value and the dividend growth. Book value is the net asset value of a company i.e. the total assets minus the intangible assets and liabilities. It is mentioned in the balance sheet of a company.
So, the next time you look up at a company, make sure that you look that it has high EPS and Book Value.
Also read: How PE ratio helps to buy best stock in the stock market
Look for Dividend growth companies:
Indian shareholders are very fond of companies that give dividends. This gives them an assurance that the company is running in good profit and that they are receiving a part of the profit every quarter. Thus , a high dividend growth company is favoured and looked up as a preferable choice.
Do not go for companies that have huge debts mounting up:
Companies that have huge debts piled up to be paid should be avoided. They end up eating the profit of the company. Also, it shows the slackness on the side of the management for not making any effort to reduce the debts. There are so many companies that have eaten up the shareholder’s wealth just because their debt was too huge compared to their net worth or their ability to repay those debts. This might lead them to sell their core assets to just get rid of the debt. One classic example of such a company is JP associates which now trades in single digits.
Look for company that have free cash flows or companies that are making genuine efforts to reduce their debts, if they had any in the past.
Never buy a company when it is at its peak price
Many would argue on this point but the truth is you do not gain enough when you buy a stock at its peak price or at its highest level. History has shown that there are always opportunities for buying your favourite stock at a reasonable price. If you have done your research smartly and you feel that your stock can give great returns, analyse the valuation smartly. Do not just jump to buy the stock at any price. Buy a stock only when you are convinced that you are buying a stock at a reasonable discount/price. As legendary investor, Warren Buffet has said that you do not wish to shop when the prices are too high. Rather you wait for a sale to come to save some money. Same should be applied for stocks. So, wait for a sale to buy in bulks.
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