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Once you’ve decided to invest in the stock market the next step is to determine which stocks you wish to buy but how do you decide which companies are worth putting your hard earned cash into?
You can buy stock in any publicly held corporation, and selecting a company in a strong growth industry is a good idea. A growth industry is a sector of the marketplace that has companies which are increasing in value. For example the technology sector has been growing for several years as technology has been changing rapidly for the last decades.
Once you pick an industry, you need to look at the individual companies within that industry. Next you need to pick 3 or 4 companies within that industry and research what these companies do and how solid their financial statements are.
If a company is listed on the stock exchange then it will have filed a company report with the Securities and Exchange Commission. You should also read the company’s annual report. Information can also be gleaned from financial reports in the media, the company’s web site, online forums, newsletters, your stock broker and other investors. Not only will you find out specific information on the company you are thinking of investing in, but you will also find information on other companies, different industry sectors and the economy in general.
How do you determine if the company you want to invest in is a good thing? Take the following into consideration:
Find out what the company actually does. With some bigger, established companies you may already know this, but if you are looking at a company which is new on the market, you made need to research its products and services.
Determine the growth of this sector of the market. Are other similar companies doing well? Does your company have a lot of competition in its industry sector? Are its products in high demand? High demand products are ones worth investing in.
What is its rate of growth of the company you’ve selected? Is it making good profits? If a company isn’t making any profits, or hasn’t recently, then it's probably not the sort of company you want to invest in.
How much debt does the company have? Large debts are not always a negative indicator, but beware as rising interest rates can spell doom and gloom for companies with large debts.
Has the company been in the news lately? Good news can send stock shares soaring. Has the company released a new wonder drug? Bad news can also affect share prices.For example, is there a new, unpopular CEO or have there been product problems or recalls? If you are a growth investor, stay away from companies with bad news. For those of you investing for value, wait a few months before buying shares in bad news companies.
If you can track the company’s earnings forecast this will be beneficial. Financial analysts do these forecasts and set trends with their readings. Forecast changes move stock prices. If the forecast is negative the share prices will probably go down.
Analysts also report on a company’s calculated earnings per share (EPS). This is a measure of how healthy the company is. EPS can indicate a company’s current and future growth. If the company you are researching has an increase in its EPS, this is a sign of increasing profit for the company.
Once you have researched the company, you can make an informed choice as to whether you wish to own stocks in this company.
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