Have you ever Googled “best stocks to buy today”? I certainly have. After doing so, I found myself wondering how the stocks I was looking at made it on the list. Finding stocks to buy is a common obstacle for novice and experienced investors alike, so don’t fret if you’re in the same boat.
In this article, I’ll cover some of the common ways investors can find new stocks to buy. Please note – not all methods are created equal. I list them here in order of personal preference (or lack thereof).
- Find companies of which you’re a satisfied customer
- Use a stock screener to find quality businesses
- Subscribe to a paid service
- Listen to financial pundits and talking heads
Find companies of which you’re a satisfied customer
This is frequently an underrated stock picking strategy, but may be one of the best. Peter Lynch, former manager of Fidelity’s Magellan fund, talks about this strategy in detail in his book “One Up On Wall Street.” The strategy? Simply buy stock in companies of which you’re a satisfied customer. That’s it.
If you’re an avid drinker of Starbucks’ (SBUX) coffee, buy the stock. If you love shopping at Home Depot (HD), buy the stock. If you find yourself eating at Chipotle (CMG) twice a week, buy the stock.
This is a powerful stock picking strategy because of one word – conviction. As a buy-and-hold investor, you need to have conviction in your stock picks. There aren’t many better ways to demonstrate conviction in a company than to fork over your hard earned dollars to it. If you enjoy a company’s products or services, you’re likely to have a stronger hand and not fold too early if the going gets tough.
Use a stock screener to find quality businesses
A stock screener is an excellent tool to help investors narrow in on stocks meeting specific criteria. Nearly all reputable brokerages (TD Ameritrade, Fidelity, E*Trade, etc…) offer a stock screener. You can also find a number of free stock screeners online. A couple examples include Yahoo Finance and finviz.
Of course, finding a great stock screener is only part one. Part two is learning how to use it to your advantage (click here to learn how to find quality growth stocks). Here’s a brief list of criteria I incorporate into most of my stock screens:
- Market cap – filter stocks based on size (micro, small, mid, large, or mega caps)
- Revenue growth – growth in revenue for the past 3 to 5 years
- Earnings per share growth – EPS growth for the past 3 to 5 years
- Cashflow growth – growth in operating cashflow for the past 3 to 5 years
- Debt to equity ratio – the lower the better
- Return on capital (or equity) – the higher the better
- PE ratio – to determine if a stock is undervalued or overvalued in relation to the market
These are just a few of the criteria available in most stock screeners. Be sure to make it your own and focus in on stocks within your circle of competence.
Subscribe to a paid service
Here’s where I start to get less enthusiastic on ways to find stocks to buy. Personally, I’m a strong believer in “teach a man to fish” which the two options above align with nicely. But there are paid subscription services out there that will feed you stock picks.
I think most are well-intentioned and a lot of subscribers swear by them, but I believe your primary investment advisor should be yourself. Nonetheless, here’s a list of the more reputable paid subscription services out there, some of which I’ve tried personally:
- The Motley Fool Stock Advisor – my review here
- The Motley Fool Rule Breakers
- Jim Cramer’s CNBC Investing Club – my review here
- Seeking Alpha’s Alpha Picks
- Investor’s Business Daily – includes IBD Digital, Swing Trader, and Leaderboard
Listen to financial pundits and talking heads
Last but not least (or perhaps intentionally so) are the countless number of pundits and talking heads on major news and financial media channels. From CNBC’s Jim Cramer to ARK’s Kathie Wood to personal financier Suze Orman, there’s nearly guaranteed to be someone on your television this very hour telling you the next best stock pick.
My advice? Listen to the “experts” more for entertainment and possibly for an idea or two, but rely more heavily on one (or all) of the three options mentioned above. Not to say the financial pundits don’t have some good ideas, but in investing, it typically pays to be a contrarian.
