First, let me make two comments:
A. I no longer make individual stock recommendations because I no longer have access to the Tools that I did as a Financial Advisor.
B. There is No One Way to select a stock to invest in. I am merely suggesting some of the factors that I might consider in doing so.
Rather than consider recommendations to choose from, I generally consider companies that I know, which have a proven track record and are one of the top two or three companies in their Market Sector. Generally, I do not necessarily rely on the fact that a company is well-known and has been around forever. Remember Eastman Kodak, Xerox and NCR (National Cash Register)? Here today, can mean gone tomorrow!
Have some idea as to what your portfolio looks like. Does it include components from a number of Industrial Sectors (i.e. Health Care, Industrials, Utilities, etc.)? You don’t want all of your Eggs in One Basket. If you work with a securities firm, ask whether they can provide you with a Morningstar Portfolio Snapshot. Otherwise, get familiar with http://www.Morningstar.Com. If you have Mutual Funds, try to get Fund Details of them. But, the focus of this Post is Selecting Individual Stocks. You might ask your Securities Firm for a breakdown in the Sectors that they recommend. Just get in the BallPark: some sectors are much larger than others.
Again, if you work with a Securities Firm, ask for S & P Stock Reports. Although I prefer the full Stock Report, a S & P STARS Report will suffice. The STARS provides: information on a Corporation’s Market Sectors; a projection on the EPS (Earnings Per Share) for next year; a short discussion on S & P’s Outlook, the Rationale and Risks of it being wrong; Market Capitalization; Revenue and Earnings Projections; various Financial Data and a Business Summary.
I also go onto my Brokerage Firm’s web site to check where the current price falls in the last 52-week Hi-Lo Range, the Dividend Yield, Price-to-Earnings (P/E) Ratio and Charts of any trends. If you can, check the Forward Price-to-Earnings (FPE) Ratio. You might find a prior Post, “Is Apple Computer Too Expensive?” of some help in understanding the P/E, https://thetruthoncommonsense.com/?s=forward+price-to-earnings. The P/E is based on the past twelve months; however, the FPE is based on the P/E projection for the next twelve months. The difference can be quite important with fast-growing companies. It is good when the FPE is a lower ratio than the P/E.
So, what do all these numbers mean: try not to be buying at the High-End of the 52-Week Price Range; look for companies that are expected to have a growing EPS and you generally went a P/E that is in the ballpark of that of the S & P 500, or other Benchmark Index (i.e. NASDAQ, EAFE, Russell 3000, etc.)–or lower. The P/E for the
S & P 500 is currently approximately 13.5X (that’s times earning for the Index), which is at a 21 year Low, due to the recent market sell-off. Your Securities Firm ought to be able to keep you up-to-date on the P/E.
Sometimes, you might take these numbers differently, and focus more on some, rather than others. Include a certain amount of Gut Feel, and External Factors and Intangibles. Now, earlier this year, I did something that I generally warned my Clients against; but, I just felt very strongly that, even buying at the All-Time High Price was right. And, even with the recent Market Sell-Off it still looks good. Likewise, with computing today being done, more and more, in “The Cloud”, you can expect continued changes–in both products and methodology– in how we compute.