Securing your finances will take more than just having a savings account. We purchase insurance, bonds, and invest in assets that we believe will help our money grow. And investing in stocks is one of those options. Buying stocks may have become easier but knowing what are the best stocks to buy and invest in is of utmost importance.
Starting a business will give you bigger returns than simply putting your money in the bank and waiting for it to gain interest. However, to maintain a business, you need to keep in mind how you’ll manage its production or operation cost.
Additionally, you will need to hire employees, secure a workspace, and purchase the necessary equipment. The list could go on and on for your business to work and generate the result you’ve been expecting. A real headache for a beginner which makes purchasing stocks a viable option.
As much as possible you want to have the bang to every buck you spend. So for starters, you should be concerned not just with buying stocks. However, it should be knowing what stocks you should be buying and why they will work for you.
What Are Stocks?
Also known as “shares” or “equity”, stocks are portions of a company and buying it makes you a shareholder who’s entitled to have a share of the company’s profit. Business owners issue stock as a way to raise funds for expansions or for venturing into other investments.
However, not all companies issue stocks. Only “public” companies do. Which abets the next portion of this article!
What Is A Public Company?
Corporations whose stock are sold to the market and can be bought by the public are called public companies. Public companies allow anyone to buy their shares on stock markets in limited percentages.
Shareholders can also sell these stocks anytime they want. Even though a small portion of stocks float in the market for the public, its daily trading or price per share that determines the value of the entire company.
Why Are Some Companies Public And Others Private?
Each company weighs the advantages and disadvantages of going public differently. Being public means generating higher revenues by the creation and sale of new shares. Yet, the lesser shares the owners or founders have in a company, the closer they have to monitor it.
When shareholders hold the most stocks of a company, the larger say they have in the company. They can even vote for the company to be sold at a lower intrinsic value.
Making the company’s stock available to the public also means that they have to answer to their shareholder’s demands, queries and amendments. Stringent reports have been required by the U.S. Securities and Exchange Commission to be submitted by public companies.
It should include financial statements and annual 10-K reports that cover the current standing of the company in detail.
These requirements help to assure the public that the government has been monitoring said companies and their compliance to the Sarbanes-Oxley Act, ensuring their money is in good hands.
In the case that a public company wants to return to being private, they have to buy all the stocks back from the current shareholders. But it is still the shareholders call who to sell their stocks to especially when there’s a dispute on who will take over the company.
Where Can You Buy Stocks?
If you are working in a company that has a 401(k), then you might be already invested in the stock market. 401(k)s usually invest in mutual funds composed of stocks from many different companies.
Individual Retirement Accounts (IRA) lets you purchase individual stocks. Opening an account with an online broker will allow you to buy other investments and sell them as well.
Online brokerage accounts work the in the same manner as hiring a personal broker. They act as the middleman between you and the stock exchanges. Each online brokers offers a variety of choices on how to handle your stocks.
Brokers charge commissions on every trade and collect several fees from investors. Knowing these policies would be helpful in choosing which online broker you want to trust.
Below are the best online brokers you can check out:
- Merrill Edge
- Charles Schwab
- TD Ameritrade
- Interactive brokers
- Ally Invest
- Fidelity Investments
Online brokers allow you to handle your account with ease as opposed to having them done over the phone. In the past, you couldn’t make a trade without meeting or calling your middleman.
Now, you can easily access the site through your mobile phone which means you can monitor your investments anywhere and at anytime. The same goes when selling your investments.
Furthermore, online brokers collect cheaper fees than personal brokers do. Since the increase in popularity of online brokers, most of them offer discounts to top the competition. So we suggest you spend some time checking out what each one has to offer.
What Stocks Should You Buy?
When selecting which stocks you should buy, you can apply the same criteria that you would when selecting a bank. First, you should take a look at the stability of the stocks.
Volatility, is one of the most recognisable traits of the stock market. However, this can either be your best friend or worst enemy as a trader. Stocks fluctuate every day.
The stocks you bought for $100 can be sold at $300 the next day and $50 on the next. So how do you assess the stability of the stocks that you are planning to buy?
Knowing a company’s stability requires you to get past the headlines. A stable company may have faced downturns over the past years but it always comes back strong.
Dig a little deeper and look for a company’s earning statement (10-Q quarterly report) on the SEC’s website. Consider 3-5 year trends on revenue or sales figures and profit margins. From there, you can assess whether it’s indeed stable or if stability was just a facade.
Check if a company pays dividends. Some investors like to look at dividends when buying individual stocks. Often, a company that gives dividends has a good degree of stability. This is especially so if its dividends have increased consistently each year for at least a decade.
However, if the company offers a very high yield, it may be a red flag. It may signal that a company is growing desperate. Look for companies that pay just enough and regularly enough.
Look at the company’s management. Does the current management promote the company’s stability? The highest tier of a company’s management might change every now and then. This can affect its market standing. In addition, a well-managed company’s stocks often trend higher.
Buying stocks is a long-term investment. Knowing if the company has the strength to contend against its competitors for a long time should also be considered when buying stocks. Proper assessment of a company allows you to see which stocks will give you good yields with lower risks.
Different Types Of Stocks
- Cyclical Stock: It follows the cycle of the economy; expansion, peak, recession, and recovery. For example, during strong economic times, cyclical stocks flourish but when it is tough for the economy, these stocks lose substantial value. In essence, cyclical stocks depend on the state of the economy.
- Value Stock: Most long-time and risk-taker types of investors turn to value stock as they tend to be cheap. Weighing the possibilities, these investors believe that these bargained stocks will become valuable in the future after a company recovers or if the industry grows.
- Penny Stocks: Penny stocks tend to be riskier than value stocks. Sold at a very low price, it may look enticing but comes with a very high risk. Penny stocks usually trade no more than $5 per share and sometimes go as low as 2 cents. The companies who issue this kind of stock are startups and need a lot of funding. Taking the risk, the investor should be ready should the company fail. But if it does well, the price of the stocks will increase dramatically.
- Growth Stocks: Companies that are expected to have high earnings issue growth stocks. This type of stock gives its investors a low dividend of its earnings but this dividend will also increase once the company grows.
- Blue Chip Stocks: Probably the most expensive out of all stocks. Blue Chip stocks come from large and stable companies. Expected to be profitable for a long time, the earnings from this stock are extremely dependable.
- Income Stocks: If you want high dividends, this type of stock is for you. Usually, income stocks are blue chip stocks from well-established companies and pay high dividends. These companies fall industries such as energy and finance.
- Speculative Stocks: Even with a high risk level, some investors gamble with these stocks. The companies that sell this kind of stock are often startups experimenting with new products or unexplored markets. While many aren’t successful, the buy-in for a high return makes it appealing to investors.
Best Companies To Buy Stocks From:
Having a diversified portfolio will help investors succeed. Today, you can invest in many stocks and manage them easily. Here are some stocks you can look into.
- National Mortgage Insurance Holdings (NMIH): Focusing on title and surety insurance, this company provides mortgage guarantee insurance using its insurance subsidiaries. Its primary insurance subsidiary, National Mortgage Insurance Corporation (NMIC) provides mortgage insurance on loans by government-sponsored enterprises. With its current worth of $2 billion, stocks from this company are definitely a steal.
- Sketchers (SKX): With its posted 15% growth in revenue and earnings per share last quarter, the company set a new company record for the revenue earnings this quarter 3 of the year. Although Sketchers may not be the most well-known brand for footwear, its healthy balance sheet and modest valuation metrics make this company a worthwhile investment.
- CVS Health Corp. (CVS): With more than $85 billion market capitalization and offering low-risk investment, this company is perfect for conservative investors. Now operating in a duopolistic market, CVS cater to a wide range of customers which translates to high earnings. Last 2018, the company purchased Aetna, continuing to turn the company into more than just a drugstore but “health innovation company” which make it ideal.
- Alphabet (GOOG, GOOGL): Google’s parent company, Alphabet is undoubtedly one of the better stocks to buy. Its subsidiary, Google, still remains at a dominant position both in search and online advertising. Last quarter, its revenue grew 20% along with achieving its diversification to sustain its revenue stream. Now, 16% of its revenue comes from non-advertising revenue which was fuelled by Google’s cloud offerings and Google Pixel Smartphone. If proven true, Google’s claim of reaching “quantum supremacy” will trigger the beginning of a new age in technology.
- Microsoft Corp (MSFT): Microsoft’s earnings rose 36% year over year to $11.6 billion in the first quarter of the year beating the fiscal estimate. The dynamic business software and other offerings in this company would be enough to assure investors of good return rates. Stock analysts say that Microsoft’s earnings will rise to 13% in 2020 and 12% by 2021.
- Walt Disney Company (DIS): The media and entertainment giant launched its highly anticipated Disney+which was predicted to be reasonably-hailed as a legitimate streaming competitor of Netflix (NFLX). Disney stocks are still at the 5% buy zone making it one of the best stocks to buy before this year ends.
Purchasing stocks and building your portfolio is one of the best ways to make your money grow and keep your finances stable. Knowing all the risks and benefits of this venture will certainly be beneficial for beginners and even for those in the field already.