Stock Picks

Great stock picks make you money. The challenge is to find the companies that can generate returns for you. There is no shortage of people providing their favorite stock picks. Friends, family acquaintances and even strangers are always willing to share their desired equity plays. More often than not, many of these stocks recommendations turn out to be money losers. To be able to pick good stocks, the investor needs to be honest about their objectives and level of risk tolerance. Besides making good returns, the individual should be comfortable with holding the security.

Establish The Investment Objectives First
Every investor is different. Some want stable steady returns over the long term. Others want incredible returns within a short period. Either way, the investor must be at ease emotionally and financially with holding the equities. The stocks they pick for their investment portfolio must meet their risk criteria, time horizon and off course generate a sufficient return.

Picking Stocks
Regardless of the investor’s time horizon, promising stocks are based on companies with strong business fundamentals. To bolster the odds of finding a good stock pick, here are some points to look for in a successful company:

Track Record Of Increasing Revenue And Profit
A company that consistently grows its revenue and profit bodes well for its stock price. Investors are more willing to pay a premium for a company that can reliably deliver solid operating results despite the current economic environment. Evidence that the company is competitive is if their sales are increasing faster than the rate that their market is expanding. This shows that the company is winning clients from their peers. The company’s five year operating results is what investors commonly use to appraise the viability of owning its stock.

The Company Is One Of The Top Competitors
In today’s hyper competitive business environment, the company needs to establish itself as one of the top players within its industry. With built up operations, sizeable base of clients and known product and service offerings, the company is a position to protect its market share and win business from its competitors. Realizing economies of scale and driving up sales momentum is critical to being in the top three in the sector that the company operates in.

Healthy Finances
A company with healthy finances is in an enviable position to exploit any opportunity that arises. Strong finances means there is little debt and plenty of cash on hand. These corporations can buy out competitors, expand operations and finance new businesses. A company saddled with excessive debts must divert a significant chunk of their profits to paying the interest on the loans. Failure to meet obligations on debt can lead to the company declaring bankruptcy.

Dividends
A dividend is a payment made by the company to their shareholders as a reward for holding their stock. A company that makes dividend payments is usually well run. Because of the cash disbursements to its shareholders, the company has to generate enough profit to continue with these payments and fund operations to ensure future prosperity. Only the business undertakings that provide the best return on investment are considered. As a result, these disciplined corporations are less likely to make poor spending decisions.

Stick To The Basics
Companies that consistently meet or exceed their business and profit targets tend to adhere to a straightforward business model. These entities focus on being the best in the market they strategically choose to compete in. They do not try to operate in different unrelated businesses. These companies constantly look for innovative ways to better manage their operations and deliver competitive products and services.

Happy Employees
Happy employees mean the company’s clients are well served. In an extremely competitive market, this provides an operational edge to the company. Its productivity tends to be high due to lower staff turnover and a healthy retention of experienced and knowledgeable staff. A favorable work environment increases the company’s capacity to recruit qualified, talented individuals.

The Company Operates Under The Radar
The best stock bargains are the companies that operate below the radar. These are companies that are seldom followed by investors due mainly to the fact that they operate in boring, unglamorous industries. These include industrial services, transport and utilities. These companies are consistently increasing revenue and profits. Because they are not widely followed, their stock price relative to earnings and book value are attractively priced. Like their companies, the executives are just as unassuming. Their focus is on building great businesses and not granting interviews to the media.

Honest Management
Honest executives usually run exceptionally managed companies. They are upfront with the challenges before them and handle them accordingly. If the company went through a trying period, the management assumes the blame and works diligently to solve the dilemma. They do not pass the blame on some external or uncontrollable developments. Company specific problems are quickly recognized and dealt with quickly.