The Stock market was once a place where only wealthy people could think of investing. With the rise of technology and the internet, the financial markets are within the reach of everyday people like you and me, providing us with the wealth-building opportunities that never existed before. There are currently over 54 million retail traders in the United States alone who actively buy and sell stocks through online trading platforms.
As Warren Buffet said, “Never put all your eggs in one basket”. If you’re one of those people who are looking for ways to diversify your investments for long term growth, the stock market is a place to consider.
However, unlike the Real Estate Market, Stock Market is a fast-paced market, which is driven more by the people than the economy. A stock’s price is not only influenced by the company’s financial performance, but also many other internal and external factors. Stock Research is a lengthy and complicated process that makes most everyday investors, like you and me, nervous and sweaty.
In this post, I’ll outline how you can research ANY stock quickly and efficiently, and pick more winning stocks in less time.
1. Identify your Sector/Industry:
Most retail investors just buy stocks based on what they read on the news. Although news influences people’s decisions, it’s never a good idea to think that a company’s stock will rise just because of positive news. In fact, most of the time it can even backfire. Instead of picking stocks based on news and what other people are saying, focus on the companies that are within your professional industry. Stock Research becomes easier when you already have knowledge about the industry/sector the stock is in. This means if you’re a gamer, try focusing on Gaming Companies more, if you’re working in the health industry, focus more on Med-Tech and health care companies.
2. Check Institutional Analyst Ratings:
Once you have identified a number of companies within your sector that you’d consider buying, it’s time to do research before you actually execute your trading decision. The best way to get an overall picture of how a stock is performing is through Analyst Ratings. The analysts provide Buy, Sell or Hold ratings after extensive research of a companies financial reports, listening to conference calls and some of them even get in contact with upper management of the company to get an overall picture of operation. Although institutional Analyst’s are not always correct, their ratings are followed by millions of traders around the world and they can heavily influence trading activities for a company.
As a retail investor, going through analyst ratings will instantly provide you an idea if the stock is worth buying.
3. Check Analysts’ Price Targets:
Top Analysts also provide their price targets. It’s a prediction of where the stock price might go based on their analysis. The best way to analyze price targets is to combined average price targets of major analysts. If the average price target is much higher than the current price of the stock, then the probability of a stock going up is also high.
4. Check EPS History, Surprises and Forecasts:
EPS, or Earning Per Share, can tell a lot about a stock’s performance. It’s calculated by dividing a company’s profit by the number of outstanding shares of its common stocks. In layman’s term, EPS is an indicator of a company’s profitability. Higher the EPS, the more profitable a company is.
Some traders pick stocks solely based on EPS Analysis, so yes, it is a very powerful indicator of a stock’s price. Before you buy a stock, check the company’s EPS History and Surprises. A Surprise happens when a company reports a much higher or lower actual EPS than the forecasted EPS. If a company reports higher EPS surprises consistently, analysts keep raising their estimates, traders become more confident in the company, driving the share price higher.
If you look at Apple Inc. (AAPL) Stock Research, it's a good example company that has a consistent history of EPS surprises.
5. Check Insider Activity:
Insider activity refers to company insiders, usually top order executives, buying and selling shares of the company.
The legendary investment manager, Peter Lynch once said, "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
When insiders (Directors, CEO, CTO and other top-level executives) of a company are buying shares, it provides more confidence for Outsiders (Traders) to speculate that the company’s stock price might increase, which leads them to take more buy positions, driving the share value higher.
6. Check Stock Sentiment:
Stock Sentiment refers to how people speculating about the stock or what kind of trading position investors are often taking. There are different kinds of sentiments you can find online for a company, this includes Investor Sentiment (Percentage of investors buying or selling), News Sentiment (Is the company getting positive or negative impressions from the Press?), Social Sentiment (The overall trends about the company in social media, is it negative or positive?).
Stock Sentiments can be found in websites like StockTwits and iTradely's Stock Research Tools. The Brain Company also provides Premium Stock Sentiment data for investors.
7. Technical Analysis:
Technical Analysis refers to analyzing a stock's price over a period of time. In the financial market, past price patterns are one of the strongest indicators of an asset's future performance. In easier terms, millions of traders use Live Charts to watch the stock prices, it is actually a single source of truth for most traders. When a stock's price reaches a significant price level/pattern in the chart, millions of traders take buy/sell positions from those levels.
Technical Analysis is a complex topic and it's beyond the scope of this article, however, as a regular investor, one of the easiest ways to check technical analysis of a stock is through Technical Indicators. Technical Indicators are programmed algorithms that monitor price changes in the Charts and indicate Buy/Sell based on market conditions. Some Technical Indicators can be very powerful (e.g SMA) and some can be pretty useless.
Stock research tools like iTradely heavily simplify the technical analysis process for the investors by showing Buy/Sell/Neutral ratings combined from 17 powerful technical indicators, all in one page.
8. Check Trading Volume and Shares Available for Trading:
Well, this is important. Volume shows you the trading activity of a stock. A low trading volume indicates that traders are not so actively trading or interested in that particular stock. A drop in trading volume also indicates a lower demand for the share, which can lead to the share price dropping.
Apart from Volume, it's also worth checking the number of available shares for trading. If the number of available shares has dropped, it indicates a higher demand than supply, which can also lead the stock price to upwards.
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