what to look for in a good stock

Why do companies cut dividends?

A company can temporarily or permanently cut its dividend to secure more liquidity during challenging economic times. This doesn’t necessarily mean the company is in jeopardy, but rather the business may require more cash to pay immediate expenses and investors shouldn’t be worried initially, experts say.

What is the P/E ratio?

The P/E ratio is a valuation metric that measures how well a stock’s price is doing relative to the company’s earnings. When using fundamental analysis and value investing strategies, P/E ratio is considered a major indicator of whether a stock is undervalued or overvalued.

How to pick an investment?

The first step to picking investments is determining the purpose of your portfolio. Everyone's purpose for investing is to make money, but investors may be focused on generating an income supplement during retirement, on preserving their wealth, or on capital appreciation. Each of these goals requires a very different strategy.

What is the purpose of investing?

Everyone's purpose for investing is to make money, but investors may be focused on generating an income supplement during retirement, on preserving their wealth, or on capital appreciation. Each of these goals requires a very different strategy. The thoughtful investor has a 'story' that explains every decision to purchase a stock.

Is a low P/E ratio better than a high P/E ratio?

You already know that a low P/E ratio is generally better than a high P/E ratio, that a company with a lot of cash on its balance sheet is superior to one burdened with debt, and that analysts' recommendations should always be taken with a grain of salt.

What is income oriented investing?

Income-oriented investors focus on buying (and holding) stocks in companies that pay good dividends regularly. These tend to be solid but low-growth companies in sectors such as utilities. Other options include highly-rated bonds, real estate investment trusts (REITs), and master limited partnerships .

Who is Tom Catalano?

Tom Catalano holds the coveted CFP® designation from The Certified Financial Planner Board of Standards in Washington, DC, and is a Registered Investment Adviser with the state of South Carolina. So you've finally decided to start investing.

What to consider before buying a stock?

Before buying a stock, it’s important to consider the level of diversification that already exists within your portfolio. For example, you may be thinking about buying shares of Apple or Amazon.com, but when reviewing your current investments, you might realize all you have in your portfolio are tech stocks.

Why is it important to consider the size of the company before buying a stock?

As a result, it’s important to consider the size of the company in relation to your risk tolerance and time horizon before buying a stock.

What are the different types of investing?

There are three key types of strategies used by most successful investors: 1 Value Investing. Value investing is the process of investing in stocks that display a clear undervaluation relative to their peers in hopes of generating outsize gains as the market catches onto the opportunity. This is the strategy that made Warren Buffett millions of dollars. 2 Growth Investing. Growth investing is the process of finding stocks that have displayed market-beating growth in revenue, earnings, and price appreciation for a length of time. Growth investors believe that these upward trends will continue to outpace the market, creating an opportunity to generate outsize gains. 3 Income Investing. Finally, income investors look for quality stocks that are known for paying significant dividends. These dividends generate passive income that can be used to fund one’s lifestyle or reinvested to increase earnings potential.

What are the metrics of a stock?

Some of the most important metrics include: 1 Price-to-Earnings Ratio (P/E Ratio). The P/E ratio compares the price of a stock to the company’s earnings per share (EPS), essentially putting a price on profitability. For example, if a company trading at $10 per share produces EPS of $1 annually, its P/E ratio is 10, suggesting that the share price is 10 times the company’s earnings on an annual basis. 2 Price-to-Sales Ratio (P/S Ratio). The P/S ratio compares the price of the stock to the annual sales, or revenue, generated by the company. For example, if a stock trades at $10 per share and generates $5 per share in annual revenue, its P/S ratio is 2. 3 Price-to-Book-Value Ratio (P/B Ratio). Finally, the P/B ratio compares the price of the stock to the net value of assets owned by the company, divided by the number of outstanding shares. For example, if a stock trades at $10, has a net asset value (book value) of $1 billion, and has 100 million outstanding shares, it has a P/B ratio of 1.

What is a short term time horizon?

A short-term time horizon is any investment that you plan on owning for under one year. Investments with a short time horizon have little time for recovery if things go wrong. If you’re planning on holding an investment for under a year, it’s best to invest in stable blue-chip stocks that pay dividends.

How long can you hold on to a long term investment?

Finally, long-term investments are any investment you plan on holding onto for more than 10 years. These investments have the most time to recover if something were to go wrong, giving you the ability to take the most risk in an attempt to generate a significant return.

What is value investing?

Value investing is the process of investing in stocks that display a clear undervaluation relative to their peers in hopes of generating outsize gains as the market catches onto the opportunity.

How to find relative cost of stock?

Another useful tool to gauge the relative cost of a stock is the price-to-earnings ratio ( P/E ). You can calculate it by dividing the price per share by per-share earnings. This provides a valuable standard of comparison for alternative investment opportunities.

How to calculate market cap?

Multiply the number of shares by the current stock price. It's known as the corporation's enterprise value when you add its debt on top of it. In short, the market cap is the price of all outstanding shares of common stock multiplied by the quoted price per share at any given moment in time.

What is enterprise value?

It's the total value of the company's outstanding stock shares, including both restricted shares held by the company and publicly traded shares. Multiply the number of shares by the current stock price. It's known as the corporation's enterprise value when you add its debt on top of it.

What is the market cap of a corporation?

In short, the market cap is the price of all outstanding shares of common stock multiplied by the quoted price per share at any given moment in time.

Who is Joshua Kennon?

Joshua Kennon is an expert on investing, assets and markets, and retirement planning. He is the managing director and co-founder of Kennon-Green & Co., an asset management firm. Doretha is a corporate IT executive and professor for 34 years.

Who is the CEO of Whole Foods Market?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors.

Is Salesforce a serial acquirer?

Saying Salesforce has been a serial acquirer is like saying the Cookie Monster has been a baked goods enthusiast. Over the past decade and a half, Salesforce has averaged about four acquisitions a year!

Is Roku a streaming service?

Roku. As streaming services ( Netflix, Amazon Prime, Disney+, HBO Max, Peacock, The Roku Channel, etc.) push connected TV to new heights at the expense of traditional cable packages, Roku has set itself up as a winning platform. One with the size and leverage to pit each service against the others.

Who is Randi Zuckerberg?

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors.

Who is the founder of Beyond?

Founder and CEO Ethan Brown knows Beyond is in a race against the competition (both traditional and upstart) to establish itself as a name brand in the space. The business has been running at hyperspeed to establish distribution across supermarkets and restaurants, as well as directly to consumers.

What is stock chart?

A stock chart or table is a set of information on a particular company's stock that generally shows information about price changes, current trading price, historical highs and lows, dividends, trading volume and other company financial information.

What is the ticker symbol on a stock?

The ticker symbol is the symbol that is used on the stock exchange to delineate a given stock. For example, Apple's ticker is ( AAPL) - Get Report on Nasdaq, while Snapchat's ticker is ( SNAP) - Get Report on the New York Stock Exchange (NYSE). The ticker is usually found under a column titled "ticker," or, in some cases, right next to the name of the stock in parentheses.

What does it mean when a stock closes?

The close price is perhaps more significant than the open price for most stocks. The close is the price at which the stock stopped trading during normal trading hours (after-hours trading can impact the stock price as well). If a stock closes above the previous close, it is considered an upward movement for the stock (and will impact things like candlestick charts, which we'll get to later). Vice versa, if a stock's close price is below the previous day's close, the stock is showing a downward movement.

What are the two axes on a stock chart?

Every stock chart has two axes - the price axis and the time axis. The horizontal (or bottom) axis shows the time period selected for the stock chart. This can generally be customized to show anything from a year time period (or even multiple years) to a day.

What are the lines of support and resistance on a stock chart?

Still, another important aspect to examine on a stock chart are lines of support and resistance. Whenever a stock trades up or down, it generally falls within what are called support and resistance lines. Essentially, the support line is a certain price that the stock generally doesn't drop beneath - it "supports" the stock upward and keeps it from trading below that price given market signals. Conversely, the resistance line is a certain price that the stock typically doesn't trade above - it "resists" the stock pushing through that top price.

What does EPS mean in stock?

Earnings per share, or EPS, can be found on many stock charts, and is a good indicator of how well the company is doing. EPS measures the amount of net profits a company has earned per share of their stock. For investors, EPS essentially represents the portion of the company's profits that their shares have a stake in.

What is a 52 week high and low?

The 52-week high and low show the highest and lowest prices at which the stock traded in that time period, although they don't often show the previous day's trading price.

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Top Performers

These companies have seen the highest growth in performance over the past year.

Top Dividend Stocks

These companies have a long history of paying dividends, and have a positive average dividend growth rate and yield of at least 2 percent.

Defensive Picks

These large-cap stocks are less risky than most publicly traded companies and suit investors who value capital appreciation and preservation.

Does market capitalization matter for small investors?

Market Capitalization. While market capitalization may not matter too much for small investors, it can play a role in the types of companies that you will see. I prefer to exclude micro-cap companies, which are companies that have a capitalization of less than $300 million.

What is a peg ratio?

The PEG Ratio is a valuation metric for determining if a company is fairly valued. It is the P/E Ratio divided by Annual Earnings per Share Growth. A ratio of 1 means that the company is fairly priced, while a ratio of less than 1 means that the company is undervalued.

What does a ratio of 1 mean?

A ratio of 1 means that the company is fairly priced, while a ratio of less than 1 means that the company is undervalued. The reason I prefer this metric to the P/E ratio alone is that it provides a look at whether the P/E ratio is excessively high, or if it actually reflects the company’s growth prospects.

What would happen if a company went bankrupt?

So, if the company went bankrupt immediately, you could actually make money (although highly unlikely). The important thing to remember is that book value varies greatly for different industries. Also, a company in distress may have many more liabilities than assets, making this number meaningless.

Who is Robert Farrington?

Robert Farrington. Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future.