Good Stocks in a Bear Market
Which stocks are good stocks in today’s bearish stock market? Some of the keys to picking the right investment are to keep a close eye on both the core metrics of what makes a good stock, and which stocks have the potential for short term bounces from the influx of government spending in the economy.
* Core stock metrics
Metrics are a measurement of stock health. Companies with good stocks, invest in the future. These are stocks where their price to earnings ratio is positive, and above the industry or market sector average. Never stop just at P/E. There are other critical metrics that also can imply the health and wellness of a stock. Price to earnings growth (PEG) measures the 3-5 year growth trend of a stock, while price to sales ratio helps the investor evaluate if P/E is true or the product of one exception deal executed on a one-time basis.
* Industry Trends
Now would not be the time to invest in a company that specializes in analog tape production or cathode ray tubes. It is critical that if the company produces a product, that the product either be tech-forward or some essential of daily life. Toilet paper is not exciting, but it is viewed by many as a necessity. There is a constant and growing demand. If a company in a consumable industry, so long as they are well managed, there is both stability and growth potential. Good stocks to invest in, are stocks that offer value and growth.
* Listen to the analysts, but make your own decision
Analysts will set expectations of what a stock will do. It is only through researching that company, looking at both company and sector trends that you can decide if the level of risk and potential for gain are both what you are looking for in your portfolio. Buy low-sell high does not refer to absolute price – the three hundred dollar share may be the good stock to invest in while the three dollar share may be overvalued.
* Diversify
Portfolios with good stocks invest in a variety of companies. Whether it is sector focused or fully diversified, the day of investing in a single stock and holding it for life are gone. Investors select the right stocks by balancing stocks with bonds, and blending various types of stocks in the same stock portfolio. There is nothing wrong with holding both Amazon.com (AMZN) and Caterpillar (CAT) in the same portfolio.
* Consider cash flow
The best companies are the ones with reliable and growing positive cash flow. If free cash flow is negative, this can indicate a real problem and an unsustainable business plan. It is from free cash flow that the money for dividends, operational expenses, and R&D come.
* Is there clear quality management of the business?
The stock of well-managed companies performs better. Signs of good management include healthy gross profit margins, tight harnessing of debt-to-income ratio, and a steady return on investment. Ensure when you look at debt that you examine debt-to-equity because if a company is over leveraged, it can be a sign that their growth is in name alone.
Related posts:
- Do You Know How To Invest In Penny Stocks?
- Growth Investing Strategy Using Small Cap Stocks
- Best Canadian Stocks….Right Now!
- Where to find good stocks to buy.
- Stock Market Technical Analysis for Beginners
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