How to Judge Stocks

The stock market can be a good place to invest, but it is best to proceed cautiously. Stocks can fall just as quickly as they rise, and finding the best stocks to invest in is a challenge, even for professional investors. Fortunately, there are some guidelines you can use to evaluate stocks and more accurately predict whether those stocks are likely to go up or down. While there are no guarantees in the stock market, knowing what to look for can increase your chances of success.

Pick up a financial publication that contains a detailed stock market section. The Wall Street Journal, Barrons and Investors Business Daily are all vital informational tools within the financial industry. You can pick up a copy at your local news stand, or pick one up at the local library. You can also use a variety of financial websites for research, including Yahoo! Finance, CNN Money and Fool.com.

Review the stock tables and circle the stocks you want to evaluate. This will make it easier to find the information you need to make an informed and intelligent decision.

Check the 52-week high and low for the stock. The range between the 52-week high and low can give you a good idea of how volatile the stock has been, and how volatile it is likely to be going forward. A stock with a 52-week high of 30 and a low of 10 is likely to be much more volatile than one with a high of 15 and a low of 12.

Find the earnings per share on the stock and use it to compute the price to earnings ratio. The price earnings ratio, or P/E, is computed by dividing the current price of the stock by its earnings per share. That means a stock with a current price of $24, and earnings of $2 per share, has a P/E ratio of 12. A stock with a P/E ratio much lower than others in its industry might have a greater appreciation potential than one with a higher P/E.

Look for a copy of the annual report for the company and look at its earnings history. Stock in a company with a history of strong earnings growth can be a good investment, while a stock whose earnings have been stagnating or going down might not be.