How To Pick A Stock

Summary

This 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.