By: slickdealer dittyesq
Image by Flickr user Katrina.Tuliao
Greetings, Slickdealers! Are you ready for some football?
Oh, right. Superbowl’s over. Well, then let’s move right on to investing instead. Over the past few months, we’ve discussed how to set up a brokerage account, and covered the mechanics of using that account, by placing a “trade.” We used the stock of Disney as our first guinea pig, but I promised you that I would return shortly to address stocks-not-named-Disney as well.
That’s what we’ll be doing today: Discussing how to choose a stock for your portfolio — hopefully, a stock you’ll really want to own.
Investing theories are like stock assets. Everybody’s got one.
In response to our last column, Slickdealer quazywong posed the following (modest) request: “Would you guys publish a list of “safe/moderate stocks” … an easy money maker?” If only it were that simple.
Problem is, picking a “moderate” stock for your portfolio isn’t always as easy as it sounds — because it depends on what you mean. There’s really no one-size-fits-all way to pick stocks, you see, because everybody who is investing is looking for something different:
- Some folks like to buy “momentum” stocks, on the theory that stocks adhere to Newton’s First Law of Motion. I.e., Once a stock’s price starts going up, it will tend to keep going up.
- Other investors, more fundamental in focus, seek out stocks that whose profits are growing. Regardless of what a stock costs today, they assume it will be worth more tomorrow so long as the growth continues. We call these guys “growth” investors. (Surprise!)
- Cheapskates like myself rummage around in the stock market’s bargain bins, searching for “value stocks.”
- Meanwhile, “income investors” pay less attention to stock price per se, and focus more on the dividends a company pays as a percentage of its stock price (the “dividend yield.”)
These are just four theories of how to pick the “right” stock. But really, there are as many opinions as there are investors out there. (Probably more. Me, I like value stocks. But I also like growth stocks. And I’m a sucker for a great dividend, too.) Choosing the right stock for you will depend greatly on what you are looking for in a stock.
That was the bad news. Here’s the good news.
Only you know what you’re looking for in a stock. But here’s the good news: If you do know what you want, I can tell you where to find it. Thanks to the wonderful, magical Internet (and Al Gore, its Creator), searching for that “safe/moderate stock” that suits you to a “T” is literally as easy as 1-2-3. All you need to find it is a good “stock screener.”
Good, free screening programs aren’t as easy to find as they once were — but they do exist. Yahoo’s got one (but it’s a little clunky.) Bing does, too. (With sliders! Cool!) The one I personally prefer, and use daily, is offered by a little private company called finviz.com. It doesn’t cost a dime to use, offers one of the best selections of data to screen for I’ve ever seen on the Web, and is lightning fast to use. You can find it right here.
A wealth of data, to build your wealth
Want to limit your searching to red, hot Nasdaq stocks? Finviz’s screener can do that for you. Still trust Wall Street, and looking for “analyst approved” equities? Finviz will let you restrict your search to nothing but stocks with the gold-plated “strong buy” recommendation. And if you insist on nitty gritty details like making sure your company actually earns profits, and doesn’t cost an arm, a leg, and the soul of your firstborn, Finviz’s various “fundamental” variables will let you focus in on companies that earn profits, grow them consistently, and sell for a P/E of … well, basically just about any P/E range you like.
Now be forewarned: It takes a while to get the hang of any new stock screener. If you know what you’re looking for, though, and just need a few hints about how to describe it numerically — don’t be shy. Shout out, and I’ll be glad to lend a hand.
Case in point: quazywong is looking for a “safe/moderate stock that will likely to be going up,” right? So just for fun, let’s run a very simple screen for a stock with just three variables:
- Profits, but a low price relative to these profits. (The cheaper the stock, the safer the stock.)
- Recent price weakness. (Because what goes down, just might come up.)
- A nice size market cap. (No penny stock fishing today.)
Tweaking finviz’s screener to search out companies valued at $2 billion and over, selling for less than 10 times the profits, that have become 10% cheaper over the past month, generates a nice, easy-to-read list of three companies: Ita (ITUB), a Brazilian bank. Assured Guarantee (AGO), a Bermuda-based title insurer. And … drumroll, please … Ford Motor Co. (F).
Now, should you rush right out and buy Ford stock? Is it the perfect stock for all investors? Of course not — or at least, no more so than Disney was the perfect choice in our last column. But this does illustrate how using a screener can generate surprising results, and ideas that you might not have considered, otherwise.
So go ahead. Give it a whirl. And post back here to tell us what you find.
International lawyer by day and Slickdealer by night, Rich Smith is always on the lookout for a good bargain. Helping corporations pillage Third World economies is great for paying the mortgage, but Rich’s real loves are writing about stock investing for The Motley Fool, buying cheap stocks for his own portfolio, and strolling the aisles at Slickdeals in search of the ultimate blue-light special. A veteran of Moscow, Kiev, and Washington, D.C., Rich has traded-in city life, and now takes his ease in the fields of rural Indiana.