Investment Tracking: 4 Steps for Picking Winning Stock

Investment tracking can be an effective way of watching and choosing well-performing stocks. Almost all major financial and news media websites provide free stock screeners that allow you to sort out certain types of investments based on your choice of filters. (Yahoo and MorningStar are among the most popular screeners.) While there is no one proven way for finding winning stocks, by tracking and screening potential investments online with a few important criteria, you will have a good chance of picking some very profitable stocks.

1.    Look for Good P/E and PEG Ratios

Start your search for prime stocks by searching for those that have good price-earnings (P/E) ratios. This is calculated by dividing the price of a stock by its 12-month trailing earnings. This number can be compared against the average P/E ratio for the whole market, or the average of the stock’s own industry. High ratios typically mean the stock’s earnings are predicted to rise quickly, making for greater volatility. Low ratios can often be a sign of an undervalued, bargain stock.

The PEG ratio for a stock is its price-earnings to growth rate and is a measure of how well a stock’s earning are expected to grow over the next three to five years. Again, lower PEG numbers are usually better.

2.    Examine the Price-to-Sales Ratios

Another factor you can use to track potential investments, especially within the same industry, is the price-to-sales ratio, or the stock price divided by the company’s annual sales per share. Low numbers, particularly anything under 1.0, are best as they mean that you pay less per unit of sales than other stocks.

3.    Study the Margins

Ratios are not the only important measures of a stock’s value. There are plenty of other contributing factors, like how efficiently the company is run. In order to get a glimpse at a company’s management strength, you can examine its margins. The margin is calculated by dividing the net income by the total value of sales in a year.  In this case, the higher the percentage, the more efficient the company is at keeping costs down and making the most profit per sale. It is also good to look at a company’s margins over time; steady or rising margins are often signs of winning stocks.

4.    Find Low Debt-to-Equity Ratios

The debt-to-equity ratio is a company’s debt load divided by its shareholders’ equity.  High ratios often indicate that companies are using borrowed money to create their growth, and can also be a sign that the company is either not managing its income well enough to pay its debts or is not making enough earnings to cover its costs. There are a few industries like the auto and airline industry where high debt ratios are to be expected, but otherwise the lower the better.

There are plenty of other useful investment tracking factors for examining stocks, but these four suggestions will get you on the right path to adding some new winning investments to your portfolio.

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