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How do I Choose Profitable Stocks?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 October 2016
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The goal of any investor is to choose profitable stocks that will produce a level of return that is considered sufficient in light of the degree of risk associated with the effort. In order to determine which profitable stocks are the best fit for a given investor, it is necessary to consider several different factors before buying any stock option. Key issues to consider before buying any profitable stocks include assessing the stability of the company issuing the shares, determine the ratio between the price and the projected earnings, and the potential for the stock to perform within reasonable limits for the time frame that the investor plans on holding the shares.

One of the first steps in evaluating any stock option is to look closely at the company issuing the shares. Ideally, the investor will see that the company is on sound financial footing, has a management team with a proven track record of competency, and enjoys a steady demand for the goods and services that it offers to consumers. Assuming that the business is stable and is likely to remain so in the future, there is a very good chance that investing in the business will be a sound move.

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Choosing profitable stocks also requires looking closely at the relationship between the purchase price and the potential earnings of the shares. In other words, if the investor can buy the shares at a low price just before the market value of those shares increases significantly, the returns can be impressive and well worth the time and efforts of the investor. At best, the returns should be within a range that the investor feels is balanced with the degree of risk that is associated with owning the shares. Since some investors tend to be more conservative than others, what constitutes profitable stocks for one may be unsuitable for a different investor.

The amount of time that an investor intends to hold shares is also important when considering different profitable stocks. When the goal is to build a portfolio that is mainly composed of stocks that are to be held for the long-term, the stock options selected will normally be stable and issued by companies that have a more or less steady ratio of supply and demand for their products, and that consistently produce an attractive level of return. For investors who want to buy shares and turn a quick profit, profitable stocks will be those that are currently selling low but are likely to jump in value shortly, hold that value for a time, then return to their former levels. Here, the goal is to know when to buy, how long to hold to earn the maximum return, and when to sell to avoid incurring any type of loss.

Choosing profitable stocks means understanding what the individual investor views as profitable within his or her own investment strategy, going with options issued by stable companies, and identifying when to buy and when to sell. By keeping these basic concepts in mind, the chances of generating equitable returns are enhanced, while also allowing the investor to remain within his or her comfort zone in terms of the degree of risk that is assumed.

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