5 Must Haves for Finding Market Beating Stocks

Identifying superior stocks is a crucial step in creating a successful investment portfolio.

There are several key factors to consider when evaluating a stock to determine if it is a superior investment opportunity.

1. Financial Performance

To find out if a company is financially secure and expanding, look at its revenue, earnings, and cash flow.

One of many metrics is the price-to-earnings ratio (P/E ratio); which contrasts a company’s stock price with its earnings per share.

A lower P/E ratio signifies an undervalued stock, whereas a greater P/E ratio signifies an overvalued stock.

More advanced metric is the Price to Book Value (P/BV).

Look for P/BV of 1.5 or lower (if able) for undervalued stocks with 67% margin of safety.

2. Industry and Market Trends

Remember, market always wins. So ally yourself with the market by knowing its behaviours. e.g NEVER trade agains the market.

Look at the overall health of the industry and how the company compares to its competitors.

Consider also the current market conditions and how they may affect the company’s future growth.

3. Company's Leadership and Management

Bad management, no matter how good the fundamentals are, will crash the company’s value. (Remember Twitter?)

A strong management team with a proven track record of success can provide stability and growth for the company.

Additionally, a company’s leadership should be aligned with the goals of the company and its shareholders.

4. Dividends, Share Buybacks, Stock Splits and Bonuses

Company with share buy backs history, stock splits, and stock bonuses is a very good sign of a strong performer.

Dividends provide a steady stream of income for shareholders, while share buybacks can increase the value of a stock.

5. Use Technical Analysis

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume.

Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Use this extensively to ascertain price trends and get good entry and exit points for your investment, after you determine the company’s funamentals are good.

James Lim

SFA Founder
Member of Australian Investors Association (AIA)
The University of Queensland Speaker

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Disclaimer: Information provided here is purely for general educational purpose without regard to any individual objectives, financial situation or needs. We are not the investment advisors and therefore all information given should not be construed as an offer to purchase or sell securities of any kind. SFA, the instructors and its staff accept no responsibility nor assume any liability for any direct, indirect or consequential gain or loss arising from the use of the information contained here. Before making any decision about the information provided, you must consider the appropriateness of the information according to your own personal situations. Past performance of the financial products is no assurance of the future performance.