Before you invest in stocks, you must make two decisions:

• When to invest.
• What to buy.

In my last blog, I discussed when to invest.  You should only buy stocks when the market is in an uptrend.  Market uptrends are the key to finding the best stocks.

So let’s talk about how to find the best stocks to buy.

First of all, you should approach investing in stocks the same way you would approach buying a business, because that is exactly what you will be doing.  You wouldn’t buy a local business that is unprofitable or one that is declining in value.  You would look at several businesses and determine which one has the best fundamentals.  Basically, you would build a watch list.

You should analyze stocks constantly to build your watch list.  When the market is in an uptrend, you can select the stocks with the best fundamentals and price action (rising in price) to invest.

Fundamentals include:

• Earnings per share (EPS) growth of 25% or higher in recent quarters.
• Accelerating EPS.
• EPS growth the past three years 25% or higher.
•  Sales growth 25% or higher in the most recent quarter.
• Return on equity (ROE) 17% or higher.

Other qualities:

• A rising chart.  Learn to read stock charts, but the first thing to detect is its trend.  Has it been rising or falling in price.  If it hasn’t been rising, avoid it for the time being.  Things can always change, but don’t fight the trend.
• Among the top-rated stocks in its industry group, and industry groups that are in the top 40-50 groups of Investors Business Daily’s (IBD) 197 industries.
• New products, service, or management.

Stocks that are in demand:

• Stocks priced $15 or higher on the NASDAQ or $20 or higher on the NYSE.
• Relative strength rating 80 or higher. Relative strength means how the price is increasing relative to all other stocks.  An 80 rating means it is in the top 20% of all stocks.  A 90 rating means it is in the top 10% of all stocks.  It is performing better than 90 of public stocks.
• It trades more than 300,000 shares per day.  High volume of trading means it is demand.  Low volume means little  interest in the stock, and low interest means it isn’t likely to rise in value.
• Increasing number of funds (mutual funds, pension plans, banks) own the stock.  Large institutional investors drive the price of stocks.

Most Important – Before investing in one of the stocks on your watch list, the market needs to be in a rally or an uptrend.

Where to find this information: The Wall Street Journal, Investors Business Daily, analysis services.

I personally use Investors Business Daily, the online version, eIBD.  To investigate, and to get lots of free information and education, visit http://www.investors.com ______________

What are your thoughts?  Do you agree or disagree?  Leave your comments in the box below. 

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Before a business has a bottom line (profit), it must have a top line (revenue).

Sales and marketing generate revenue; cost controls and performance measurements (metrics) determine the profit.

In tough economic times, business owners discover that the first thing to suffer is the top line – sales.  They can cut costs and measure results until the cows come home, but they will not have a good bottom line without a strong top line.

Integration of marketing, sales, cost controls, and performance measurements are necessary to foster profitability for any business.

To make sure profitability is a rising graph and not a declining one, you need to develop systems to achieve profitability.

Marketing

Marketing, simply stated, is any contact you have with your target customers.  It is influencing the people you serve to consider or contact you instead of your competition.  This is crucial for the health of your business.

This is what you need to do:

• Evaluate the effectiveness of your current strategy (web, direct mail, etc),
• Make your product or service stands out from your competition,
• Start testing and measuring the results from the dollars spent on what works most effectively for you.

In most cases, you should be able to reduce marketing costs, increase leads generated, and generate more dollars and more customers!

Sales

Nothing happens until you sell something.  That is the next step in the business cycle, and it is essential.  Once you have pulled more people with your marketing, you must now convert those leads into customers.

You need strategies to improve the sales process and a sales system that is effective.

Cost Controls

Effective cost controls are an essential part of any profitable business. It may be budgeting, paying attention of critical line items, or something else, but cost controls don’t have to be complicated.  They just need to be effective.  Make sure you’re concentrating on doing the right things, not just doing things right.  Effective managers do the right things.

Performance Metrics

To find out the score, you need to keep score.  Performance metrics keep you focused on what is important.  They keep your company on track by making sure you hit important mileposts and stay on track as you progress toward your long term goals.

The effective manager is the manager doing the right things, not just doing things right.