If you’re willing to roll up your sleeves and do the research necessary to invest in individual companies, a stock may be a good fit for your new portfolio. The key is to avoid excessive risk. The best way to minimize risk is to buy a solid company — one that is essentially a blue chip or a largercompany growth stock.
Look for a stock with consistent performance that appears to sustain and even increase over time. The Dow Jones Industrial Average is the index of blue chips, listing the likes of IBM, Kodak, McDonald’s, and Sears. These stocks tend to hedge investors’ first exposure to equity investing by paying dividends that offset any lackluster performance. You may also want to seek out a value stock — a stock that has been underperforming its peers, but that seems poised to turn things around. An index called “Dogs of the Dow,” which is compiled by Dow Jones and printed in The Wall Street Journal, lists specifically those stocks that are on the outs. Of course, none is guaranteed to become the next best stock to own.
You have to judge for yourself by looking at a company’s long-term growth and earnings; its price-to-earnings (P/E) ratio; and any company news that can give you insight into debt level, acquisitions on the horizon, and competitive edge of products, services, and management. (The P/E ratio is derived by dividing a stock’s share price by its earnings-per-share price. The result shows how much investors are willing to pay for each $1 of earnings)
Annual reports, which you can request from a company’s own investor relations department, can give you some of these details; but for the rest, you have to sift through analysts’ reports and check the charts that are available from firms such as Morningstar (www.morningstar.com) and Standard & Poors (www.stockinfo.standardpoor.com). These services can show you a stock’s ups and downs over the years and even over the past month.
Analysts’ reports can project a company’s earnings, dividends, and price growth over the next few months and years. Don’t forget to check on competitors, too. Because all performance data is relative, a company that may seem like a great catch may actually be inferior to its peers, but you won’t know that if you don’t check. For example, if you’re thinking about investing in McDonald’s, make sure that you check out the stocks for Wendy’s, too.
Look for a stock with consistent performance that appears to sustain and even increase over time. The Dow Jones Industrial Average is the index of blue chips, listing the likes of IBM, Kodak, McDonald’s, and Sears. These stocks tend to hedge investors’ first exposure to equity investing by paying dividends that offset any lackluster performance. You may also want to seek out a value stock — a stock that has been underperforming its peers, but that seems poised to turn things around. An index called “Dogs of the Dow,” which is compiled by Dow Jones and printed in The Wall Street Journal, lists specifically those stocks that are on the outs. Of course, none is guaranteed to become the next best stock to own.
You have to judge for yourself by looking at a company’s long-term growth and earnings; its price-to-earnings (P/E) ratio; and any company news that can give you insight into debt level, acquisitions on the horizon, and competitive edge of products, services, and management. (The P/E ratio is derived by dividing a stock’s share price by its earnings-per-share price. The result shows how much investors are willing to pay for each $1 of earnings)
Annual reports, which you can request from a company’s own investor relations department, can give you some of these details; but for the rest, you have to sift through analysts’ reports and check the charts that are available from firms such as Morningstar (www.morningstar.com) and Standard & Poors (www.stockinfo.standardpoor.com). These services can show you a stock’s ups and downs over the years and even over the past month.
Analysts’ reports can project a company’s earnings, dividends, and price growth over the next few months and years. Don’t forget to check on competitors, too. Because all performance data is relative, a company that may seem like a great catch may actually be inferior to its peers, but you won’t know that if you don’t check. For example, if you’re thinking about investing in McDonald’s, make sure that you check out the stocks for Wendy’s, too.
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