If picking the right stock was as easy as everyone wishes it would be, we’d all be rich. As great as that may sound, it unfortunately is not the case. As it turns out, it’s actually quite difficult to spot those winning stocks. Below we’ve compiled our top 6 signs of a promising financial investment.
Stocks that are currently undervalued. This is a great place to start. It’s when a stock is undervalued, but can be expected to eventually return to normal price levels. This offers you a much better chance of realizing capital gains. Consider the case where you buy the same stock, but at normal price levels. Now you must hope that its price will increase beyond its normal levels in order for you to realize gains. Do you see how it’s much more likely that an undervalued stock will return to its normal levels, rather than a normally priced stock increasing beyond its average levels? Now we aren’t ruling out the fact that it could appreciate above these normal levels. Rather, it is more likely to rise when it is already undervalued.
Macroeconomic conditions favoring industry growth. It’s to your advantage invest your money in a particular industry that shows strong macroeconomic conditions. In these cases, it may make sense to invest in a stock that is priced at its normal levels. This requires that you carefully consider the interdependent macroeconomic conditions at play here. Whether it’s political, economic, technological or environmental factors, the impact of each one needs to be considered.
Company announces dividend increase or issuance. It is generally a positive sign when companies announce the issuance of new dividends, or an increase to existing dividends. This sends an optimistic signal to the market on behalf of the company. It’s been observed that when a company signals a dividend increase, its stock price tends to appreciate afterwards. This is seen as a positive sign to investors, as the company is able to return cash back to its investors.
Large players establish steady industry shares. Major companies can offer stability, reliability and cash flows. Specifically, if you are interested in dividend stocks, this is a good tip to keep in mind.
Signs of long-term growth potential. It is definitely worth to keep an eye out for investments that show potential for long-term growth. Rather than betting on short-term fluctuations, why not invest in something that offers long-term, sustainable growth. For example, ETFs that reflect large stock indexes like the S&P 500 may fluctuate in the short-term, but appreciate overall in the long-run.
Favorable risk-reward profile. If the risk-return profile of an investment is skewed favorably, it is worth investigating. This is when the investment opportunity is offering a reward that is disproportionate to the risk involved. Specifically, the risk is low compared to the potential return. Though, you should proceed with caution depending on the nature of the investment to ensure you have complete information and transparency. There are times when some things are just too good to be true. Be sure to do your due diligence and determine whether it’s worthwhile.
These are 6 factors you can use to help identify promising financial investments. You can level the stock market playing field once you know what the professional traders know. Our Elite Legacy Education instructors will introduce you to the trading strategies that produce potential profit when stock prices are falling, lock-in gains, reduce risk, and squeeze extra money out of stocks in your portfolio.
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