What are the best ways to choose stocks for purchase recommendation to investment clubs that have a "buy and hold" philosophy of investment?
For this the investor should study the fundamentals and do the financial analysis, also ascertain the intrinsic value of the organization. Then one should compare the intrinsic value with the market value. If the market value is lower then one can buy and hold till it reaches intrinsic price.
I am giving you step by step instructions of doing fundamental analysis:
1. How economy is doing? Ascertain whether economic variables are favourable?
2. What is the industry outlook for organization? What is the business model and growth opportunities
3. What Is the revenue growth compared to the industry (give a 3 year historical and expected)
4. What is the earnings per share growth, (give a 3 year historical and expected)
5. What is the Quality and commitment of Management?
The Economy Analysis
It will consist of analyzing variables consisting of GNP -Growth, Price Conditions, Inflation, Economy Bom, Housing Construction Activity, Employment, Accumulation of Inventories, Personal Disposable Income, Interest Rates etc. On the above factors the decision will be made whether to invest in a particular economy or not.
The Industry Analysis
Every industry has to go through a life cycle with four distinct phases
i) Pioneering Stage
ii) Expansion (growth) Stage
iii) Stagnation (mature) Stage
iv) Decline Stage
These phases are dynamic for each industry. You as an investor is advised to invest in an industry that is either in a pioneering stage or in its expansion (growth) stage. Its advisable to quickly get out of industries which are in the stagnation stage prior to its lapse into the decline stage. The particular phase or stage of an industry can be determined in terms of sales, profitability and their growth rates amongst other factors.
The Company Analysis
There may be situations were the industry is very attractive but a few companies within it might not be doing all that well; similarly there may be one or two companies which may be doing exceedingly well while the rest of the companies in the industry might be in doldrums. You as an investor will have to consider both the financial and non-financial aspects so as to form a qualitative impression about a company. Some of the factors are
History of the company and line of business
Product portfolio's strength
Intrinsic Values like Patents and trademarks held
Foreign Collaboration, its need and ...
The best ways to choose stocks for purchase recommendations to investment clubs that have a "buy and hold" philosophy of investment are discussed.