How To Pick A Stock
Summary
TLDRThis video script offers five key criteria for selecting stocks with long-term growth potential. It emphasizes the importance of companies with positive and increasing earnings per share, a low PE ratio relative to historical data, a strong balance sheet with assets exceeding liabilities, a profit margin greater than 20%, and a history of stock buybacks. The script introduces the Stock Sage app, a tool that simplifies finding stocks meeting these criteria for a yearly subscription of $129.
Takeaways
- 📈 The video discusses five key factors to consider when selecting stocks that are likely to grow in value over time.
- 🏢 The first factor is ensuring the company is profitable, as many stocks on the market do not make money and owning such stocks can be a risk.
- 🔍 Use tools like the 'Stock Sage' app to identify stocks that have shown positive earnings for at least the last three to five years.
- 📊 Look for companies with increasing earnings per share over the years, indicating growth and a potentially good investment.
- 📉 Consider the price-to-earnings (PE) ratio, aiming for stocks with a low PE ratio compared to their historical performance to buy at a good price.
- 💰 Check the company's balance sheet for strength, with total assets exceeding total liabilities and current assets being higher than current liabilities.
- 📋 A healthy profit margin on the income statement, preferably greater than 20%, indicates a company that is efficient at turning revenue into profit.
- 🔁 Watch for companies that are buying back their own shares, which can be a sign of confidence in their own stock and can increase the value of remaining shares.
- 🚫 Avoid stocks that are continually issuing more shares as this can dilute the value of existing shares and is not a sign of a healthy company.
- 📊 The 'Stock Sage' app can filter stocks based on these criteria, making it easier to find fundamentally sound investments.
- 💡 The importance of not just focusing on well-known names but on stocks that show consistent growth and financial health is emphasized.
Q & A
What is the main topic of the video?
-The main topic of the video is to explain the five key factors to consider when picking a fundamentally sound stock for long-term growth.
Why is it important to check if a company makes money before investing in its stock?
-It is important to check if a company makes money because stocks represent shares of a company, and their value increases when the company is profitable and growing, attracting more buyers than sellers.
What does the video suggest to look for in a company's earnings history?
-The video suggests looking for a company with positive earnings per share for the last five years and a trend of increasing earnings over that period.
How does the Stock Sage app help in identifying stocks with positive earnings?
-The Stock Sage app automatically pulls up stocks at their annual low price that have positive earnings for 3 to 5 years from the last five years.
What is the significance of a company's PE (Price-to-Earnings) ratio when evaluating its stock?
-The PE ratio is significant as it helps determine if the stock is overvalued or undervalued relative to its earnings. A low PE ratio compared to historical levels may indicate that the stock is undervalued and due for an increase.
Why is the balance sheet important when analyzing a stock?
-The balance sheet is important because it shows the company's financial health, with a preference for companies where total assets exceed total liabilities and current assets exceed current liabilities, indicating financial stability.
What does the video suggest about a company's profit margin?
-The video suggests that a company's profit margin should be greater than 10%, and ideally greater than 20%, indicating that the company is not only making money but also managing its expenses efficiently.
What is a stock buyback and why is it a positive sign for investors?
-A stock buyback is when a company repurchases its own shares, which can be a positive sign for investors as it indicates that the company believes its stock is undervalued and also reduces the number of shares available, potentially increasing the value of remaining shares.
How does the Stock Sage app help in identifying companies that are buying back their stock?
-The Stock Sage app allows users to filter and identify companies that have been buying back their stock for at least three or four of the last five years, showing a commitment to enhancing shareholder value.
What is the price of the Stock Sage app and what does it offer to its users?
-The Stock Sage app is priced at $129 per year and offers a tool to easily find stocks that meet the criteria of positive earnings, low PE ratios, strong balance sheets, high profit margins, and stock buybacks.
What is the final recommendation in the video for investors looking for stocks that will increase in value over the years?
-The final recommendation is to focus on stocks with positive and increasing earnings per share, a low PE ratio, a strong balance sheet, a high profit margin, and a history of stock buybacks, using tools like the Stock Sage app to identify such opportunities.
Outlines
📈 Stock Selection Criteria: Earnings and Growth
The speaker emphasizes the importance of selecting stocks from companies that have been profitable over the past five years, with a focus on consistent growth in earnings per share. They illustrate this with an example of a company that only turned profitable in 2023 after years of losses, underscoring the risk of investing in stocks without a track record of profitability. The speaker also introduces the 'Stock Sage' app, which filters stocks based on positive earnings and suggests looking for institutional investment as a sign of a fundamentally sound company.
🔍 Analyzing Earnings Growth and the Stock Sage App
The paragraph discusses the use of the Stock Sage app to identify companies with positive earnings growth over the last five years. It highlights the desire for increasing earnings per share, not just consistent earnings, and warns against companies that have seen a decrease in earnings. The app is praised for its ability to filter stocks that are at their annual low price and have a history of positive earnings, offering a tool for investors to find potentially lucrative stocks.
📊 Earnings Per Share and Stock Price Trends
This section delves into the analysis of earnings per share and its correlation with stock price increases. The speaker uses the example of a company with a history of increasing earnings per share and significant stock price growth in the last three years. They also mention the use of financial estimates from Yahoo Finance to predict future stock movements, comparing these estimates with historical data to gauge potential returns on investment.
💡 Utilizing PE Ratios and Stock Valuation
The speaker introduces the concept of Price-to-Earnings (PE) ratios to determine stock affordability and potential for growth. They demonstrate how to use historical PE ratios to estimate a stock's low price and discuss the importance of buying stocks when they are at a low PE ratio. The paragraph also touches on the use of the Stock Sage app to find stocks with favorable PE ratios and positive earnings.
🏦 Balance Sheet Analysis: Current and Total Assets vs. Liabilities
The focus shifts to the importance of a strong balance sheet, with the speaker explaining how to assess a company's financial health by comparing current and total assets to current and total liabilities. They use the Stock Sage app to filter stocks based on this criterion and discuss the implications of a company having more assets than liabilities, indicating financial stability and potential for growth.
📊 Profit Margin as an Indicator of Financial Performance
The paragraph discusses the significance of profit margin as a measure of a company's profitability. The speaker sets a benchmark of over 20% profit margin as an indicator of a financially successful company and uses the Stock Sage app to filter stocks based on this criterion. They provide examples of companies with varying profit margins and highlight the desirability of stocks from companies that can maintain high profit margins.
🔄 Stock Buybacks and Company Growth
The final point in the speaker's analysis is the practice of stock buybacks, which can be a sign of a company's confidence in its own value. They differentiate between companies that issue more shares and those that buy back shares, using the Stock Sage app to identify companies that have been consistently buying back shares. The speaker argues that such companies are more likely to see an increase in stock value over time.
👋 Conclusion and Future Engagement
In conclusion, the speaker summarizes the five key criteria for selecting stocks with potential for long-term growth: positive and increasing earnings per share, a low PE ratio, a strong balance sheet with assets exceeding liabilities, a high profit margin, and a history of stock buybacks. They express anticipation for the next video, inviting viewers to join them for further discussions on stock investment strategies.
Mindmap
Keywords
💡Stock Increase
💡Fundamentally Sound Company
💡Earnings Per Share (EPS)
💡Net Income
💡Institutional Investors
💡52-Week Low
💡Stock Sage App
💡Price-to-Earnings Ratio (PE Ratio)
💡Profit Margin
💡Stock Buybacks
💡Balance Sheet
Highlights
The importance of choosing stocks from companies that are actually profitable, as many stocks on the market do not make money.
Introduction of the 'Stock Sage' app, which identifies stocks at their 52-week low with positive earnings for the last 3 to 5 years.
The significance of a company's earnings per share (EPS) being positive and increasing over the last five years.
The strategy of buying stocks when the price is at a low PE ratio, indicating potential for growth.
Analyzing a company's income statement to ensure consistent growth in earnings and not just profitability.
The use of PE ratios to estimate where a stock's low price might be and to determine if it's at an affordable price.
The necessity of a strong balance sheet with current assets exceeding current liabilities for financial stability.
The advantage of looking for companies with total assets greater than total liabilities for long-term growth potential.
The role of profit margin on the income statement, with a preference for companies exceeding a 20% profit margin.
Filtering stocks in the 'Stock Sage' app based on profit margin to find companies that are efficient at turning revenue into profit.
The concept of stock buybacks as an indicator of a company's confidence in its own stock and potential for value increase.
The differentiation between companies that buy back their shares and those that continually issue more shares.
The practical use of the 'Stock Sage' app to identify companies that have been consistently buying back their shares.
The five key factors to consider when investing in stocks for long-term growth: positive and increasing EPS, low PE ratio, strong balance sheet, high profit margin, and stock buybacks.
The benefit of using the 'Stock Sage' app to streamline the process of finding fundamentally sound stocks for investment.
The presenter's personal recommendation and endorsement of the 'Stock Sage' app as a valuable tool for stock selection.
Transcripts
148% increase in the stock
price that was
2021
38% in
2022 and
167% in
2023 hey guys in this video I'm going to
show you the five things that you look
for when you're picking a stock that's a
fun Fally sound stock that you want to
grow in value over
time and I'm going to start with the
first
one and that one is that the company
because we know stocks are just shares
of a company is that the company
actually makes money a lot of stocks on
the stock market actually don't make
money and there's a lot of people I
speak to who own stocks and I ask them
what they own and they tell me and when
they show me the stock would tell me the
stock they own I look up the ticket
symbol pull up the stock and show them
that this company's lost money for the
last five
years
so I'm going to go
to the 52 we low these are the stocks
that have fallen into their their annual
low
price and we see a bunch of them down
here a dollar $9
$2 I'm going to go to the first one with
a decent amount of
money let's
see well let's look at black line ticker
symbol
is BL
doesn't come
up oh it does fill up
okay let's go to the income
statement and when you go to the
bottom let's look at that let's look at
two
things first the earnings per share 2019
negative 2020 negative 2021
negative 2022
negative only in
2023 was it positive so now I'll go to
net
income
and in
2019 this company lost
32,5 35,000
in 2020 they lost
46,9
11,000 in
2021 they lost 11
15,1
161,000 in 2022 they lost 29
m391
th000 only in
2023 did they make money they made 52
m833
th000
so there are a few things that you check
for when you're buying
stock because stock is basically shares
of a
company and what makes those shares go
up the shares go up when more people are
buying than
selling and you have a lot of smart
investors out there they're called
institutional investors they invest for
organizations and Banks and so
forth and they are very educated
investors and when the company is
fundamentally
sound and at a good price that's when
they buy and you want to be buying with
them so this is is one of the things you
look for if it's a company that's losing
money every year you don't want to buy
it but if it's a company that's making
money every year you want to buy
it so I'm going to show you a way that
you can make sure that you're getting
companies or
stocks that are making money every
year and not not only that there are
other things to check for as well I'm
going to show you those as
well so this is the stock Sage
app and what the stock Sage app does
every day that the market is
open is it checks the 52 Week
low and it pulls up all of the companies
that have positive earnings for three or
more years from The Last 5
Years so if we look at these
companies or if we look at this
list 1
9183
42945 all positive earnings we're not
seeing any negative earnings
I'm not seeing any so far but at the
most I should see two years here's one
this one has one year's negative
earnings and that was 2020 Co lockdown
year so this app pulls up all
companies with positive earnings for the
last five
years but we want more than that
the second thing that we
want is we want companies where it's not
just positive
earnings like this one has five years a
do 686 a114 A1
4656 that's fine they made money every
year the only problem is I don't want
them to just make money every year I
want the amount of money that they're
making
to be increasing every
year I
want so I want those earnings per share
maybe they can fall back one year but at
least four of the five years I want
their money to be
increasing like this one looks good 92
cents and 29 a13 in 2020 A1 69 in 2021 1
a172 in
2022 but in
2023 they fell all the way back to 26
Cents again let's see what they're doing
right now in
20124 so I'm going to click on the
ticker
symbol go into the
app and the current earnings per share
is negative
so I don't want that
company
so we just looked at the first thing
that you're looking for when looking or
looking at when looking for
stock you want a company that
has positive earnings per
share for the last five
years and you want those earnings share
growing at least four to five
years now this app stock Sage actually
does that for
you the app is only
$129 for a year and it actually pulls up
all of the
stocks on at their annual low price that
have positive earnings for anywhere from
3 to five over the last 5 years this app
does that for you but there are other
things that you want to look for when
buying a stock as well and we're going
to go through those as
well one is going to be well let's jump
to
the most important one
I'm going to explain what those are for
in a
second but let's choose
paycom notice in the top of the
app it has the earnings per share for
the
last five years as well as this year
$3.14
in 2019
$249 in 2022
$3.39 in
2020 or
2021
$486 in
2022
$591 in
2023 and right now it's
2024 what's the current earnings per
share
$819 so this earnings per Shar is
increasing every
year but the app also shows you the high
and low stock prices for the years
$114 in
2019 and the high was
$277
45 that was an increase of
143
37% then low price $1
16195 and high price 4
16686 in
2020 that was an increase of
18827
per. low price
$299.95 high price
$553
197 in
2021 that was an increase of
8482 per. low price $253
53 and high price
$42.39 in
2022 that was an increase of
62.6% and in
2023 low price
$145.2 high price
$371
19 that was an increase of
1556
6% in
2023 and we can even go to
a site like Yahoo go to Yahoo
finance and go
to
pcom and they'll give us an estimate of
where they feel
the stock is going to move up to this
year
$190.
31 so we type that in
here and it will actually tell
us what the estimate
is for how high they feel this stock
will move
up in 202
before the current year which is 30.7
to% now bear in
mind Yahoo when they
estimate where they feel a stock will
move up to I feel that they're giving
you a very conservative
estimate because the lowest that this
stock has moved up to in the last five
years has been
62% but their estimate only gives you a
30%
but in any event you get all of this
information from the app but the most
important thing notice that if we look
at the low prices this stock was
$114 in
2019 161 in 2020 299 in
2021 253 in
2022 and
145 in 2023
you can't know where a
stock is going to fall to as far as its
low
price by just looking at the price it
can pretty much fall
anywhere however what you can do is
estimate where a stock is going to fall
to by looking at the low PE
ratio and you have the low and high PE
ratios here
here so the low p ratio in 2019 it was
39 36 2020 it was
65 2021 it was 8
888 so this one the PE
ratios are further spread
apart I'm going to go
back and choose a different stock
where the P ratios may be closer
together let's look at MGP
Ingredients and if we look at MGP
Ingredients their low pees
were 17 8 10
14
16 right so I can look at this stock and
I can say
okay if the PE
Ratio is around
10 I'm definitely going to buy it cuz it
may be at its low
price if it's around
12 I may consider
it if it's around maybe 14 even 16
because we see in 2023 the lowest p
ratio was
16.93 in 2019 the lowest p ratio was
17.67% the PE
ratios give you a much better
sense of where that stock is going to
fall as far as the low p ratio and then
start to move back up if the P
ratios been to
8.84 in 2020 and that was the lowest and
let's say you saw the p ratio was around
eight right now could it fall further
yes
absolutely but we're looking for
probabilities and is the probability
that it's going to fall much further no
it hasn't fallen further in The Last 5
Years so the probability is that if it's
around 8 it's moving back up and the
probabilities is that right now if it's
at 16
.89 which is lower than it's been in
23 as well as
2019 it may move back up from here you
have to watch it you can't be sure but
it may move back up from here it may not
go any lower this year so the second
thing that you want to do is check with
the current p ratio is and where these
low PE ratios are for the Last 5 Years
so that you can see if this stock is at
an affordable price on the other
hand if I'm looking at the stock right
now and it's at a PE ratio of let's say
35 that's
higher than high PE ratio for this
stock in
2023
2022 2009 um
2021
2020 the only year was higher was 2019
where it went to
42.9 so if you buy this stock with a p
ratio of 35 what's it more likely to
do it's more likely to move down for the
rest of the year than it is to move up
for the rest of the year you want to get
it when it's moving up not when it's
moving
down so that's two things you want to
look for when getting a
stock you want positive earnings per
share that's moving
up and you want to get it when it's at
that low PE ratio
now let's look
for or I should say let's look
at the third thing that we want to look
for actually I'm going to come back I'm
going to make this the fifth I'm going
to make this the third current assets
and
liabilities now the way that this stock
Sage app works
is that it automatically only pulls up
stocks whose total
assets are more than their total
liabilities but current
assets is not automatically higher than
current
liabilities that's actually an option in
here so if you click on current assets
to current liability
now it Narrows the list down to only
stocks that have current
assets that are higher than current
liabilities and what does that mean well
once again I'm going to go in the app
choose a different
company you know what I'm going to
choose a better
company give me a second
yeah let's go back to MGP Ingredients
now if we look to the debt to equity for
this
company we like a debt Equity that's
under
200% but this one is they're all under
100 2019
39.63 2020
39.63
2021
61.65 2022 55
33 and 2023
63.88
but now we're going to look at the
balance
sheets and on the balance sheet you have
two
things you have the current numbers and
the total numbers so first let's look at
the current
numbers first we have current current
assets everything let's go up so you
could see the
Years first we have current
assets that's everything the company
owns and current
liabilities everything the company
owes current is in I'd say a year or
less everything that they own which is
like shortterm a year or less everything
they owe which is shortterm a year or
less notice
2019 current assets 1884 M26
th000 current liabilities
39,2
195,000 so when we subtract the current
liabilities from the current
assets there's
a lot left over which basically
means if this company was to run into
trouble like the companies did during
2020 Co lockdown years a lot of
companies couldn't open they couldn't
conduct their business but do they have
enough balance enough money on their
balance sheet to be able to continue to
function and operate without having to
close
down a company that doesn't have that
they may have had to close
down
well if we look at
mgp's um balance sheet they were
fine same thing with 2020
2021 2022
2023 all of these years their current
assets very far exceeded their current
liabilities on their balance sheet now
what about total assets and total
liabilities well in
2019 total assets were
322,000 and what was their total
liabilities 91 mil 553,000
so
their total assets far exceeded their
total
liabilities when you subtracted one from
the other you still had 231 million
44,000 we see the same kind of
story with 2020 21 22
23 so that's the second second thing you
w to well I'm sorry that's the third
thing that you want to check for when
you're picking a fundamentally sound
stock that's going to grow in value we
said number one positive
earnings for at least three four five is
ideal of the last five years we want
those earnings to be growing every year
that was number one number two we wanted
to be a low PE ratio and low PE ratios
is
relative in other words a low PE ratio
for one company may be nine a low p
ratio for another company may be
23 it depends on what that company's low
PE ratio looks like for the last five
years
the third thing is we want total assets
greater than total liabilities and
current assets greater than current
liabilities now what's the fourth thing
we're looking
for a fourth thing we're looking for and
all of these things once again you find
in the stock Sage app of which I am
going to put the the um the URL or the
website for that app in the description
it's only
$129 a year the fourth thing you're
looking for is on the income
statement you want the profit
margin to
be well greater than 10% is decent I
want even
better I want greater than 20% so I'm
gonna
turn all these filters
off and let's look at how long this list
is of all the stocks that fell to the 52
we low that have positive
earnings pretty long list right now
let's turn on the current
assets greater than current liabilities
notice the list is still
long but it gets a little shorter
now greater than 10% on the income
statement in terms of the profit
margin our long list has just been
narrowed down to
six now let's
say profit margin greater than
20% and when we change it to profit
margin greater than 20%
now our list has moved down to two now
let's look at the earnings per share 5
cents 10 cents 26 Cents 37 cents 49
cents it's moving up each year let's try
this one pure cycle Corporation 20 cents
28 cents 84 cents then a drop 40 cents
20 cents I'm going to go with DLo let's
see what the carent earns but sure
is and the current earnings per share
for
DLo is 44 cents but remember we're still
in June so the year isn't even over
yet
now we only have 3 years is for this
company but
notice 148% increase in the stock
price that was
2021
38% in
2022 and
167% in
2023 I'm going
to scroll down a little bit
want to go to the income
statement and here we're looking at the
income
statement profit
margin
31.9% in
2021
25.93% in
2022 and 22.
91% in
2023 so
I would say that's the fourth thing
you're looking for you want a company
that's actually earning
money doing what they do for a living
and
20% may not seem like much to you but
for a company 20% is very good you have
a lot of companies out here who earn a
lot of money during the year
I shouldn't say earn they make a lot of
money during the year in terms of sales
and revenue but after they pay all of
their
expenses the amount of money that they
keep in actual
profit may be
2% it may be
5% if they make 10% in profit they're
doing good if they make 20% in profit
they're doing pretty
well
so like I
said let's turn off these
filters and click a few companies so I
can improve my
point darling ingredients good company
let's go to their income
statement 9% 8% 133%
11%
9% and these are solid companies let's
go to otx open tax
Corporation 9% 7% 9% 11% 3%
let's go to Robert
Half 7% 5% 9% 9%
6% so when you can find a company that's
making over
20% you're doing pretty well but with
this app that's
simple all you have to do
is click on greater than
20% and it pulls them right up for you
and those are four
things we spoke
about the positive earnings for those
five years we spoke
about looking at the p ratio to make
sure you're buying it at a good price
we spoke about a strong balance sheet
and we spoke about a company that has a
decent profit margin greater than 10% or
greater than 20% Which this app helps
you to find very easily lastly we're
going to talk about a company that does
stock
BuyBacks and let me explain what a stock
buyback is
a
company
actually can make
money in any of three
ways the first way is the way that we
like our companies to make
money that is by doing whatever they do
for a
living
right
now what does that mean that means if
they sell shoes you you want them to
make their money by selling shoes if
they sell TVs you want them to make
their money by selling
TVs what are the other two ways a
company can make
money the other way a company can make
money is they can just borrow
it and there's nothing wrong with
borrowing so that they could build to
make more
money but when you borrow you have to
pay
back and you have to pay back with
interest so you want your companies to
be careful of borrowing you want them to
keep their debts
down and the third way that they can
make
money is by selling more shares of their
stock they can actually use the stock of
their company like an
ATM they need more money so what are
they they do they just keep selling more
shares and selling more shares that's
what you don't want them to do as a
matter of fact you want them to do the
opposite you want to see them buying
back their
stock and with this app you can see that
you can see which
companies are buying back shares of
their stock either for the last five
years or barring one year would mean
they bought back shares of their stock
for at least three
years or they bought back shares of
their
stock I'm sorry they bought back shares
in stock for at least four of the last
five years or they bought back shares in
stock for at least three of The Last 5
Years so we see D local limited bought
back for at least three of The Last Five
Years let's make this list longer I'm
going to say greater than
10% and there we
go let's check out pom
again
now just because the company bought back
of their
stock doesn't mean that's the only thing
they
did they may have sold more shares as
well so you want to check that you want
to see
that they didn't sell more shares than
they bought
back in the case of
paycom for all five years it's z0000 z z
so paccom didn't sell more shares of
this stock in those five
years but in
2019 they bought back
42,5 128,000
worth in 2020 they bought back 52 mil
40,000 worth in
2021 they bought back
65,500 worth
in
2022 they bought back
94,6 52,000
worth and in
2023 they bought back
286 Million
618,000
worth
so those
are the five things that you want to
check for guys when buying a stock a
stock that's going to be increasing in
value over the years and putting money
in your pocket we're not so concerned
about it being a big name that everybody
knows we're concerned about it being a
stock that's increasing in value over
the years and putting money in our
pocket and those five things are one
positive and increasing
earnings per share every year of those
last five years
to a
relatively low PE ratio so that we know
the stock is about to move up from that
point
three we want a strong balance sheet
current assets greater than current
liabilities total assets greater than
total
liabilities we want a decent profit
margin on the income statement greater
than 10% or greater than
20% and we want a stock that's not
continually selling more a company
that's not continually selling more
shares of stock but actually buying back
shares of their stock and with all of
these things that
process the process can be a bit tasking
it can be hard to find but all of it is
right here in the stock Sage app for
simple
$129 a month you can find the um Link in
the description in any event guys you
have a great night and I look forward to
speaking to you in the next video
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