What is the Best Stock to Invest In?

If youre like most stock market investors you have struggled with finding the best stocks to invest in.

There are several ways to find the best stocks to invest in. But first you need to decide what method works best for you.

Basically there are two main types of stock market investing

1. Investing in growth stocks

2. Investing in value stocks

Growth stocks are companies that are growing fast in earnings. There are a lot of high tech and medical growth stocks.

Value stocks are stocks that are undervalued because they trade at a lower price compared to the companys fundamentals (i.e. earnings, dividends, sales etc)

Growth stocks generally will fatten your bank account faster but there is more risk whereas value stocks will generally grow at a slower more sustainable pace but probably wont give you ulcers.

Heres what some investors look for in a growth stock (based on my understanding of the National Association of Investors Corporation (NAIC) criteria):

1. Strong Earnings Growth either quarter to quarter or year over year

2. Strong Forward Earnings Growth analysts estimate what earnings will be for the next quarter or year, if they estimate growth thats a plus.

3. Profit margins youd prefer the company to be making a considerable amount of profit to sustain further growth

4. Return On Equity (ROE) look for growth in ROE or a stable ROE

5. Doubling in 5 years or less youd prefer the stock to double in 5 years look at what the analysts estimate for price potential.

Also heres what some value investors look for:

1. Shares price below intrinsic value

2. Low Price to Earnings (P/E) ratios

3. Price to Earnings Growth (PEG) ratio below 1 is good

4. Stock price is less than tangible book value

5. A debt to equity ratio below 1

6. The companys assets should be more than the companys liabilities by at least a factor of 2

7. Dividend Yield within 1/3 of the amount of the AAA bond yield

8. Earnings growth of at least 7% a year for the past 10 years

There are all sorts of other ways to find the best stock to invest in but this should give you a starting point.

Reed Floren runs a stock market forum where you can find answers to all your stock market questions register for your free membership at this stock market forum

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