How to Know Which Stocks to Buy

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Picking stocks is scary, especially these days when the stock market is unpredictable.

But knowing the right stocks to buy is not impossible. You just need to focus on the right things.

There are some key stock indicators that will tell you whether or not a stock is a good pick. Here are a few.

Look at earnings first.

When you research a stock, the first thing you should look at is the Earnings per Share (EPS). This is the amount of profit the company is making per each share of stock. A positive EPS means the company is making a profit. A negative EPS means the company is losing money.

The most important thing to see is increasing earnings. You will notice that most earnings charts have a prediction for the future. Usually these predictions are pretty close. A stock with earnings trending up is a good sign.

A stock with negative current earnings but positive future earnings may be a good bargain now.... if you believe in the predictions for the future.

Look for a dividend.

A dividend is a cash payout to shareholders, usually every quarter. A stable or increasing dividend means the company has good cash flow and a positive outlook for the future. A decreasing dividend usually means the company is trying to keep some cash on hand for other expenses, possibly a sign of tough times ahead.

One indicator of a good stock to buy is a high dividend yield. The yield is the yearly dividend as a percentage of the stock price. A high yield means you are getting a larger dividend for your investment.

See what the experts are saying.

Experts can be wrong and sometimes spectacularly. But, it's a good idea to see what they're saying. If you find that many stock analysts are saying the same thing about an individual stock you've probably got accurate information. These people are paid to know the ins and outs of that company. Trust your own judgment but the experts can be a good resource too.

Look at the stock price relative to it's history.

This technique is especially helpful for stocks with a long history. Some companies have been traded on the stock market for decades. If you look at the stock price chart and see that it's currently trading near it's all time low you might have a bargain. Some stocks are cyclical and swing back up. Some stocks are very reactive to the market as a whole and recession brings the price down for no good reason.

Gauge the future for that industry.

This is a bit like looking into a crystal ball but sometimes there are some obvious signs regarding the direction certain stocks are going.

Take air travel for example. If you believe that oil prices are going to increase, air travel will become even more expensive. As the cost to fly increases fewer people do it. This makes it more difficult for airlines to profit.

Avoid stocks in industries that are headed for tough times. The stock usually retreats with the industry as a whole.


  • Make sure to diversify by investing in several different stocks at the same time


  • Investing in the stock market is risky. You can lose your entire investment

About the Author

This article was written by PocketSense staff. If you have any questions, please reach out to us on our contact us page.

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