These are trying times for investors. The market is trying to rebound from a recession and the confusion that stems from government regulation. Profits are all over the map, and because of that future prospects have never been more vague. Investor confidence is low, yet hopes run high.
This means selecting stocks to buy now is tougher than ever before.
So how do you go about finding stocks to buy now?
First, investors need to get clear on their goals. Because they can’t have it both ways in terms of dividend income and price appreciation. And with risks higher than normal due to the recession and its effect on retail prices and consumer spending, historical trending goes out the window as a reliable indicator.
Risk tolerance is the key factor in both income investing and price speculation, both for the short and long term. This requires significant research and consulting with trusted experts before making your choices.
The best stocks to buy now are found according to two levels of criteria.
First, look at how the company has weathered the current recession. Are they at the bottom of their pricing range? How have they rebounded, and what is the overall status of their market niche and their strength within it?
By assessing these factors, you may find a company with solid core strength yet one that is trading at a bargain simply because of today’s market. With a return to better economic conditions, such companies may out-perform the market by going back to their normal P/E ratio and trading level.
When that happens, you’ve just found a bargain.
Next, look at the niche within which the company competes. Is it highly influenced by consumer spending and economic trends? These companies may not rebound until the economy does, despite their near-term performance. And if the niche itself remains depressed, then the company may not rebound at all.
Banks, for example, are still profitable despite current news resulting from government bailout money and management ineffectiveness and corruption. And yet, despite profits, investor confidence remains low. Whether this is a buying opportunity in the hope of forthcoming solidarity or is a matter of opinion, which means the source of such insight becomes a tangible factor in your investing strategy.
At the end of the day, despite the current recession and the resultant lack of investor confidence, the best stocks are those that you feel look good on these two fronts – fundamental performance and prospects, and the influence of market factors on price movement and investor confidence.
It’s the same challenge, but with more urgent stakes.
Because in today’s market things can change quickly, and with exaggerated consequences. Treading lightly and carefully has never been better advice. And yet, with so many solid companies simply waiting for the economy to rebound, buying opportunities have never been so prevalent.
Doing your homework and understanding your level of risk tolerance is, and always has been, the key to success in picking stocks to buy now.
