Thursday, 5 January 2012

Growth Stock Picks

Everyone wants to make money in the stock market by buying companies on the cheap but have great growth potential.   But how can you tell the best growth stock picks from the losers?

A lot of people who invest in the stock market will buy a stock because they know the name or saw an ad on television. This is a good way to lose all your money in a fast amount of time. Buying winning stock picks requires a great deal of knowledge and homework. There are some basics you should look for. These include a low P/E ratio, good operating margins, a lot of cash on hand, a small amount or no debt, and possibly insider buying. The lack of insider buying is not a bad thing; it’s just a big positive when you see it taking place on a large scale. Don’t be fooled by small purchases. This means nothing. If anything, they’re trying to portray something that is not taking place. Also, when you see insider selling, if it’s automated, it’s okay. It’s when you see selling by the masses all within a short period of time that you should be worried. But let’s focus on cash vs. debt. These two stats alone can make you bundles of money. The only requirement is that you’re patient and willing to wait for your long term stock picks to reach their target price or even blowing expectations.

Why would you want to buy stock in a company that has a lot of cash and very little or no debt? You might think the answer is obvious, but it’s not. Actually, in the short term, these are often bad purchases. This might sound confusing, but there’s a logical reason. When a company has a lot of cash and little to no debt, they don’t have as much room for improvement. Wall Street likes growth and recovery stories. If everything is going well, there is no room for recovery. And growth must be caught very early. Therefore, there is nothing to get excited about. A company that is paying off debt at a rapid pace is a better buy than one that has no debt. However, if you buy stock in a young company with a lot of cash and little to no debt and you’re willing to wait, you could wake up one morning with an enormous gain. These companies are the most attractive for larger companies to scoop up. If they get bought, you will usually make between 15% and 50% in one day.

Here are three easy steps to finding the best stocks with potential for being bought. 
  • One, find out how long they have been in business. If it’s less than five years, they have a better chance of being bought. 
  • Two, look at their cash and debt. Make sure there is a lot more cash than debt. No debt at all is ideal. 
  • Three, buy and wait. It’s that simple.

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