How to tell which stocks to buy? Here are the 6 most important ways

Nick Sundich Nick Sundich, September 29, 2023

How to tell which stocks to buy? Investing in markets such as the ASX can be an exciting and profitable venture, but it also comes with its fair share of risks. With thousands of stocks available for purchase, it can be overwhelming to determine which ones are worth investing in.

In this guide, we will discuss some key factors to consider when making this decision.


How to tell which stocks to buy? Here are the 6 steps


1. Understand your investing goals

Before jumping into the markets, it’s important to have a clear understanding of your investment goals. Are you looking for short-term gains or long-term growth? Do you want to take on high-risk investments or prefer a more conservative approach? If the latter, then the right shares to buy are those in the major equity indices like the ASX 200. If the former, then blue chip stocks won’t be appropriate for you but higher risk stocks outside the indices might be.

Yes, we know this step is only a starting point, but knowing your goals will help narrow down the types of stocks that are suitable for your portfolio.


2. Research and analysis

Proper research and analysis (both fundamental and technical analysis) are crucial when it comes to choosing the right stocks to invest in. This involves looking into a company’s financial health, management team, competitive advantage, industry trends, and other relevant information. It’s also essential to keep a close eye on market trends and economic indicators that may affect the performance of certain stocks.

Whether it is a bull or bear market, the shares to buy have favourable tailwinds, are at reasonable multiples (preferably near the average multiple across major ASX indices) and have sound technical fundamentals.


3. Diversification

The saying “don’t put all your eggs in one basket” rings true when it comes to investing in the stock market. So if you own a company in one industry, a competitor is surely not one to buy unless you sell out of other. Diversifying your portfolio by investing in a variety of stocks can help mitigate risk and potentially increase returns.

This means not only considering different industries but also different types of stocks, such as large-cap, mid-cap, and small-cap stocks.


4. Evaluate valuations

Stock prices can fluctuate greatly, making it important to evaluate the valuations of potential investments. A company with a low stock price may seem like a good deal, but if its industry is facing challenges or the company has weak financials, it may not be a wise investment. On the other hand, a high-priced stock may be justified if the company has strong growth potential and a solid track record.

It is important to not just look at a company’s raw share price as the determinant of value. Look to a company’s total market capitalisation and its multiples (EV/Sales, P/E and PEG multiples among others).


5. Seek Professional Advice

If you’re new to investing or simply don’t have the time or expertise to thoroughly research stocks, seeking professional advice can be beneficial. Financial advisors or investment managers can help assess your goals and risk tolerance and provide recommendations for suitable stocks.

However, it’s important to do your own due diligence and carefully consider whether you trust any advisors and their advice given before making investment decisions.


6. Staying Informed

The stock market is constantly changing, so it’s important to stay informed about the companies you have invested in and the overall market. Keep up with company news, earnings reports and industry updates that may impact your investments. This will also help you make informed decisions on whether to hold or sell your stocks. Subscribing to our NEWSLETTER will help you a lot!




Final Thoughts

Choosing which stocks to buy can be a daunting task, but by understanding your goals, conducting thorough research and analysis, diversifying your portfolio, evaluating valuations, seeking professional advice when needed, and staying informed, you can make more informed investment decisions.

Remember that the stock market is always evolving, so it’s important to regularly review and adjust your investments as needed. With the right approach, you can build a strong and profitable stock portfolio over time. So don’t be afraid to start small and continue learning as you go!

Investing in stocks may seem intimidating at first, but with proper knowledge and careful consideration, it can be a rewarding experience (literally).


What are the best stocks to buy right now?

Check out our top 4 stock picks


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