Stock Selection For Successful Investing Strategies

If you want to be successful in your investment strategy

, you need to know how to select winning stocks to invest in. Many investors choose to obtain advice from a stock broker, their friends or some other adviser. Sometimes the advice is good and sometimes it is not. However, many savvy investors choose to determine their own stock selections for successful investment strategies. They have confidence in their ability to choose good companies based on certain criteria. Knowing this criteria will be able to save you a lot of money. You will not need to use a full service broker to establish your trading strategy.

There are many different stock screening devices available to help you to screen for winning stocks. You will want to find one that will work for you. Many of the stock information sites such as MSN Money, Yahoo, CNN Financial will have stock screening devices. Once you have found a good stock screener, you will be able to filter out the stocks which do not fit the criteria that you are searching on.

There are thousands of public companies available to invest in. What you want to do with your stock filtering is screen out the dead wood. You are only interested in those stocks which are poised to make a run upward.

You will want to find the companies which are making a profit. Filter for those companies with gross margins above twenty percent. It is a waste of time to look at companies which are not making a large profit. After all, investing in the stock market is the same as choosing to purchase a company. Why would you choose to acquire a company which was not making a profit?

Find the companies with high trading volumes. Never invest in companies with less than 100000 shares traded per day. These companies will be the ones who are attracting the most interest. Therefore, you will want to be interested in them also.

Locate those companies which are growing their top and bottom numbers by over fifteen percent. This is the benchmark which many institutions will look for in their filtering process. You should also look for companies which have a considerable institution following. The institutions generally know what they are looking at. Following their lead is a wise step. Large insider volume is also a necessity. Stocks which do not have large insiders investing in them are a warning sign to stay away.

Significant cash flow is another important consideration. Cash does not lie. Companies may be able to do creative accounting to make their numbers look good, but they cannot make their cash flow lie. Therefore, you want to find the companies with consistently large cash flow generation.

Other ratios to consider is the price to earnings ratio. If this ratio is above thirty-five, then the company may not be a good buy. This generally means that the stock price is going up faster than the companies earnings. The stock may be considered overbought and set for a fall. There are technical analytic processes to check to see if the stock is overbought. These will include the Bollinger bands, stochastic, RSI and directional movement index (dmi). Understanding what information these technical devices give you will help you to further analyze your stock selections.

A review of the debt ratio will also serve you well. You will want to stay away from companies which have a debt ratio above forty. These companies may not be able to sustain their growth if cash becomes tight or the economy turns.

Take the time to filter your stock selection using several different methods. There are a couple of books by Peter Lynch which are available which will help you with your stock screening process. These books would be worth reading to obtain a sound understanding of the process to screen for winning stocks to invest in.

by: Garth Wheeler

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