You may be curious to know what are the best stocks to buy right now?
Some of the popular stocks that may come to mind include:
- AAPL (Apple)
- MSFT (Microsoft)
- GOOGL (Alphabet)
- TSLA (Tesla)
- AMZN (Amazon)
- NFLX (Netflix)
- PLTR (Palantir)
- And the list goes on…
Although some stocks may be popular doesn’t mean they are good investments.
Just because a “Finfluencer” on Tiktok, guru on Youtube, or a financial analyst on the news made a suggestion doesn’t mean a stock is a good buy.
The question is, how do you know what is a good stock and what is a bad stock?
This article will give you some quick tips to help you determine the difference. This way you can become the expert in a conversation and the best part is, you can use data to back it up!
By completing the steps below, you’ll find that most advice you see online is… bad advice.
Here is how you determine if a stock is a good or bad investment.
Tools you’ll need:
- Your phone or a computer
- A free website that shows financial statements on stocks. Personally, I like Yahoo Finance, MarketWatch, or Investing.com.
Time you’ll require: 5 – 10 minutes
This is a manual process. If you want to skip the manual process, you can jump ahead and join Tykr which does this for you.
When you hear advice from someone on what stocks to buy, the last thing you should do is buy that stock. The first thing you should do is ask why? In most cases, you won’t get an educated response. This means you’ll have to run your own analysis. Let’s dive in!
- Open your browser and go to a free website that shows financial statements.
- Search for the stock that someone told you to buy.
- After you search for the stock, look for a button that says Financials.
- Look for the Income Statement first.
- Make sure you are looking at the Annual report not the Quarterly report. There should be buttons or a toggle where you may switch between Annual and Quarterly.
- On the Income Statement, we’re going to look for 3 data points which include Total Revenue, Net Income, and EPS. On investment.com, EPS is labeled Diluted Normalized EPS.
- Starting with Revenue, look at the last 4 years or statements. We should see the numbers increasing year over year.
- With Net Income, we should see the numbers increasing year over year.
- With EPS, we should see the numbers increasing year over year.
- Now move on to the Cash Flow Statement.
- On the Cash Flow Statement, we’re going to look at 1 data point which is Free Cash Flow. If there is no data in Free Cash Flow, go to the Net Change in Cash and just like the Revenue, Net Income, and EPS, make sure the numbers are increasing year over year.
- Now move on to the Balance Sheet. This is the last financial statement in the process.
- On the Balance Sheet, we’re going to look for 4 data points which include Total Assets, Total Liabilities, Total Debt, and Total Equity.
- With Total Assets, we should see the numbers increasing year over year.
- With Total Liabilities, we should see the numbers remain level or decrease. If they are increasing that’s okay because liabilities include employee payroll. If a business is growing, it will need to hire more employees (payroll is a liability).
- With Total Debt, we should see the numbers decrease. If they are increasing that’s okay because debt can be a form of a bank loan. As businesses grow, they need cash to cover expenses and the fastest way to raise capital for a proven business is a bank loan.
- With Total Equity, we should see the numbers increasing year over year.
To summarize…
You should see the following numbers increasing year over year.
- Revenue (Income Statement)
- Net Income (Income Statement)
- EPS (Income Statement)
- Free Cash Flow or Net Change in Cash (Cash Flow Statement)
- Assets (Balance Sheet)
- Equity (Balance Sheet)
You should see the following numbers decreasing year over year.
- Liabilities (Balance Sheet)
- Debt (Balance Sheet)
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Automated Process
The steps outlined above are the manual process for analyzing a stock.
How would you feel if a software could do this automatically for thousands of stocks and give you an easy-to-understand summary?
While some people will take hours if not days to analyze stocks, you can now do this in seconds.
If you’re interested, we welcome you to try Tykr for free. Tykr not only analyzes thousands of stocks around the globe but it teaches you the following:
- How to get started if you’re completely new to investing
- How to reduce risk of losing money
- When to buy
- When to sell
- How to make the biggest returns in the market
Click Here for a free trial.