Choosing a Stock That Beats the Street
Many investors use many different approaches to pin pointing the stock that will out perform analysts expectations- of course that's the goal anyway. How do you choose the winning stock? Generally I look for companies that are thriving financially with consistent earnings and a reasonable amount of debt. Then I look at a company's portfolio of products and services. Is the company generating sustainable revenue? Does the company seek to understand its customers by listening to the good and the bad? Are the company's products routinely used by its customers and marketed in a fashion that appeals to more and more consumers? Who are the competitors? Then, of course, look at earnings trends. Is there a noticeable trend of the stock price? All of these questions will help you identify growth potential of both the company and your investment dollars.
Observe our cultures needs and how they could possibly change over time. Changing tastes and preferences translates into new goods and services provided. For example, in the late 1940's and early 50's Americans began to demand more industrial goods like automobiles, homes, and other consumer goods. This resulted in out performing industrial stocks such as auto manufactures and home builders.
One particular transition that the world population is in is increased life expectancy. This may sound odd, but if you connect a few dots it is quite intuitive. More people are living longer, healthier lives due to advancing medical technology. This could imply a potential increase in demand for senior homes, medical services, medical technology, and pharmaceuticals. Increased demand translates into increased profits. Greater profits turns into higher stock prices.
Another popular trend is that of a "green" company. In this case, green doesn't imply planting a tree in the companies employee lounge. The term "green" means environmental awareness and taking proper action to build a better, healthier planet. Corporate America has been part of the pollution issue plaguing this planet- consumers are becoming more and more aware of it. The "green" corporate movement is mostly a reaction to the demands of consumers, but it also means a potential profit center.
Companies going "green" contract with other companies that restore "run-down" ecologies, clean up dump sites, and recycle waste products. Companies providing green type services and products are sure to surge in growth in the coming years.
The key is to look for shifts in personal preferences, then find a way to cash in on the trend. By simply observing news or magazine headlines, subtle trends can be found. Find out what the new hot product is; who's selling it; then investigate. Many stocks have been propelled to new highs by a single product. The issue is, can the company producing the product or service sustain profits. Most product stocks will find it difficult to maintain demand because personal preferences can change so rapidly. For example, the cell phone was a huge break though. Earlier cell phones were incredibly expensive and bulky. Consumers voiced their opinion and preferences changed. Those companies like Motorola who have, to some degree, ignored their customers found it difficult to keep up with competitors like LG and now Apple.
Finding a winning stock is merely a matter of finding a trend. The trend may be a change in personal preferences, changes in how we live our lives, or changes in our culture. Whatever the trend is, there is a way to cash in on it.
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