Best Stocks to Buy in 2015
Types of Stocks to Buy
Not all stocks are created equal. The reality is that there are actually 11 different industry sectors that qualify stocks. We'll focus on 2 big ones.
Energy stocks typically have to do with companies that are involved in the oil and gas industry. As you may have guessed, the price of oil is key and has a lot to do with profits in this industry. Beware that stock prices in this industry show high variance and speculation about the price of oil can lead to great profits or massive losses for investors.
This industry is where banks, funds, exchanges and brokerages are categorized. Most of these companies generate steady returns that mirror the general market sentiment. When things are good, these stocks do well – when things are bad, they mitigate the damage.
Not sure where to go to find stocks? Check out these sites.
Top 100 stocks at barchart.com
Best stocks by category at InvestorPlace.com
OR you can try the Motif Investing option which allows you to invest in customizable baskets of stocks in specific categories or industries.
How to Find Stocks to Buy Today
Finding out what stocks to buy always involves a discussion about PE ratio. The price to earnings ratio of a company represents how much investors are willing to pay based on a comany's profits on a per share basis. To put it simply, imagine a theoretical company that has a share price of $50, with earnings per share of $5. The PE ratio of this company is 10 because the price is 10 times greater than the earnings.
While PE ratio is a versatile measuring tool, it varies by industry and fails to paint a detailed picture of a company's true situation. PE ratio can vary based on the expectations of a company's performance and can vary wildly. Use this to your advantage to swoop in when a company's PE ratio has gone down temporarily, and be wary of stocks with high PE ratios as that necessarily means that prices are going up or profits or going down, or both.
Here's Some Tips to Find Stocks to Buy
Stick to what you know. If you don't understand what a company does, don't buy it. Every stock has an underlying business that is the real indicator of success or failure. If you understand that business, than you will have a greater rate of success.
Beware the bubble. While investors would like to think they are reasonable and make sound investment decisions, this is not always the case. This irrational exuberance can lead to herd behaviour where everyone jumps on the bandwagon. Beware the hype and stick to your guns.
Check out Modest Money’s Stock Wizard and use their filters and categories to find the right stock for you
How to Read Stocks
The best way to read stocks is through dividend yield. A dividend is when a company pays out a sum of money to its shareholders. Dividends can be irregular, but most of the time they are paid out quarterly. Dividends are often distributed as a portion of the company's profits and are typically a safer investment than non-dividend paying stocks.
The dividend yield is pretty simple: take the dividends per share and divide by the price of that share and there you have it. Dividend yield reperesents how much cash flow one gets for each dollar they invest. A lot of investors prefer stocks with high dividend yield because they pay out cold hard cash.
Dividend yields can be seen almost as an interest rate earned on an investment. The reason dividend yields are so sought after has to with the fact that a company that pays out a steady stream of dividends is often very profitable. The longer the history of these dividends, the better, and more stable the investment becomes.
How to Pick Stocks
A popular strategy for how to pick stocks is called value investing. The way it works is that investors look to buy companies with high intrinsic value that are trading at a lower price than they should be. In short, they look for solid undervalued stocks and buy them before the rest of the world realizes and the market corrects itself. When the price finally does go up, the value investor makes a nice return and will usually divest from the company in order to rebalance their portfolio as their stock is now worth a lot more than it was before.
Intrinsic value is a tricky thing to estimate. That's because investors have to estimate what a company is worth and there are no right or wrong answers. The idea is that by using careful evaluation techniques and comparables, a smart investor will be able to figure if companies are undervalued and have a guess as to how much.
One can look at key financial ratios like the PE ratio, but that doesn't tell the whole story. Financial statements are another great way to check in on the health of a potential value stock, but what does that say about growth or other comparable companies. There's a lot of work involved, and that's one way how savvy investors can make money by trading undervalued shares on the stock market.
Where to buy stocks
So you want to buy some stocks, but where do you start? The first thing you will need is to find a stockbroker. Brokers are professionals who are licensed to buy and sell stock from the market on your behalf. As you can probably tell, stockbrokers come in all shapes and sizes depending on your investing needs. They can fill all kinds of different orders and the more expensive ones provide analysis and recommendations.
For the beginner investor, we recommend going for an online or discount broker. That's because they offer the smallest barrier to entry. With online brokers you can start trading without even meeting someone face to face. All you have to do is call or chat to set up your account and within a few clicks you can start trading. There are tutorials to help you get started but it's pretty straight forward for the do it yourself type of person.
Discount brokers are a bit different. They are like online brokers but charge a small fee per transaction. While discount brokers are very similar to online brokers, they do provide a small amount of assistance such as company information and other helpful resources. Investors can start at the lower level with discount and online brokers and upgrade to full-service later on. Be prepared to fork over some cash for a full-service broker who will take the time to meet with you and perfect your investing strategy.