Whether you heard about the high earnings or you just want to diversify your investment portfolio, stock trading is something that you should consider. It can be a very enticing investment, especially when you hear real-life stories about investors who got wealthy with this. However, it isn’t as simple as dropping money at different stocks and waiting for the returns. You need to figure out what stocks are worth investing in.
With that said, there are indeed stocks available in the stock market that are not worth it. These types of stocks may promise earnings that sound too good to be true and had even become profitable for others. However, the stock market has high volatility which means that prices fluctuate a lot. Its value can go so high but then come crashing down the next instance. However, this should not discourage you from investing and participating in stock trading. You can make wise investment decisions by knowing what stocks are worth investing in. With that, here are 5 things you need to know to find out which stocks are worthwhile.
#1 – What the company that offers the stock do
To know what stocks are worth investing in, it is a golden rule to research the company that offers such stocks. It is not ideal to just go with whatever company you already know. That is because they are already famous and have been existing for so long, thus, their stock values are very high. This will require a high-priced investment upfront. Furthermore, even if the company is well-known, its market value can be a whole other story. Thus, researching these companies is a must.
When you research companies, you need to know what their source of income is. What are their products and services and who are their customers? What industries do they depend on and will these products or services be needed after five to ten years? You can learn most of this information by doing a quick Google search and going through their official websites. You can also check out stock reviews of other investors to know their opinions and predictions for a particular company. This is a valuable resource to know what stocks are worth investing in.
#2 – Know what is the Price to Earning Ratio of a company
Price to Earning Ratio or the P/E Ratio is the comparison between the price of a business’ share and the earnings per share. This ratio is used to accurately determine the true value of a stock. An investor can easily assess whether a stock is undervalued or overvalued through this method. You can get the P/E ratio by simply dividing these two factors that are being compared.
Once you know the relative value of the stocks, you can easily make comparisons to know what stocks are worth investing in. You will be able to evaluate how much of the stock price you are willing to pay and how much you can earn per share. Thus, you will be able to make a comprehensive decision on which stocks to invest in.
#3 – How the company handles their dividends
Dividends are an important piece in finding out what stocks are worth investing in. They are profit distributions companies execute to pay shareholders. If a company has systematic and prompt handling of its dividends, it is most likely to be stable and will remain that way for a long time. Furthermore, it is a great sign if the dividend payout increases annually.
One good tip that traders do is they buy a company’s dividend first. If the profit they gain is worthwhile, they will buy the company’s stocks. Moreover, some companies pay their dividend holders with shares or stocks instead of cash. Thus, by taking this route, you will not only have another type of investment but you will also eventually become a stockholder.
#4 – What kind of leadership does the company have
The best way to ensure that a certain stock will yield returns is to assess whether the company can progressively earn profits. To be able to determine if a company has such capacity, investors look into the kind of leadership the company has. If the administrative management of the company is effective, dynamic, and trustworthy, investors are assured that the stocks they buy will yield income.
Effective company leadership can be seen in the work environment that the company has. It can also be soon on how often the company invests in itself and its workers. Investors should also look into the experience and the expertise of the members of the top management and who these brought value to the company. Depending on the leadership of the companies, you will be able to see what stocks are worth investing in and what are profitable.
#5 – Assess the stock value performance
Last but not the least, the most common method in determining what stocks are worth investing in is to analyze the performance of a stock in the market. Using the stock charts, you will be able to see how well or how bad the stock performed in a certain period. Therefore, it is important to know how to make fundamental and technical analyses of stock charts.
There are three types of stock charts, namely candlestick, line, and bar charts. Each chart may be different but the stock trading strategies usually apply to all. The most common assessment of stock charts is by looking for patterns. Patterns tend to recur, especially in the stock charts. Thus, one can predict where the prices will go and make wise decisions in stock trading. Therefore, it is valuable to learn stock trading patterns. Once you are familiar with it, you can easily make the right assessment of a stock’s performance and decide if you should invest in it.
Learn more about what stocks are worth investing in
These five points in determining what stocks are worth investing in are enough to get you off the ground in stock trading. However, they are not sufficient since new ways to evaluate stocks are constantly formulated. Thus, it is recommended that you learn these stock evaluation methods to always get the upper hand in stock trading. If you want to learn more about what stocks are worth investing in and how you can discover them, subscribe to our newsletter now!