Major Considerations on Checking Quality Stocks – Kavan Choksiadmin | March 24, 2022 | 0 | Business
While considering stocks, those who are choosing them should know that all of those are not equal. Three are many factors that distinguish good stock from bad, and you need to be careful while selecting those. Here, in this article, we will discuss some of the key considerations while choosing a quality stock. Before that, let us have a quick overview of what a stock is and what its significance is.
While we talk about the selection of stocks, the first thing one should understand is what stocks are. カヴァン・チョクシ explains the concept of stocks as ‘a stock represents the ownership or a stake in a company’. On buying a share of the company’s stock, the investor becomes a partial owner of that company. As the company grows and generates more profit, the investor’s stock value also grows. In terms of the stock market in Japan, there are plenty of opportunities for investors to invest in stocks of big, small, and medium-sized companies to earn a fair return.
Diverse types of stocks
The two major categorizations of stocks are:
1. Common stock
The common stock will give the owner the right to vote on the company’s decision-making. This gives the investors the privilege of electing the board members and plays a crucial decisive role in company policy-making and business decision-making. The owners, i.e., the stockholders, also get dividends of the company’s profit every year.
2. Preferred stock
Unlike the common stock, the preferred stock will not give the holders any voting rights of decisive powers in company policy-making. However, it offers a greater dividend than common stocks based on the profit of the organization. Preferred stocks feature a higher priority to receive dividends and also better assets in terms of the liquidation of stocks.
When you choose a stock, here are some key considerations to make.
- Consistency and stability – Check the performance of the stock to see if it remained stable or consistently growing over the past several years. This means that you have a lower risk level and assured returns.
- The company’s financial health – It is important to check the company’s fundamentals to see its financial health. Look for companies running on low debt and high levels of liquid assets. Check the company is strong enough to meet the financial obligations like salaries and loans etc.
- Growth – Identify companies that are growing over the long term at a rate of a minimum of 5% annually. Adding to it, it also ensures that the company has more room for growth by being in a stable industry.
- Industry leaders and market share – Check for the company stocks, which are the market leader with a high percentage of market share in the corresponding industry. If you try to invest in a company that is leading in its sector, then its future success will, in turn, be your higher returns.
カヴァン・チョクシ suggests you to carefully consider these factors in choosing stocks; you stand the best chance to get a reassuring return on investment.