If you are considering entering the stock market game, all of the various and sundry advice out there regarding how best to turn a profit and maintain a healthy portfolio can be terribly overwhelming. Learning how to make money in the stock market requires a willingness to fail. Unfortunately, this failure can often result in losing hard earned cash. If you are extremely unlucky, it can mean losing a great deal of it. For most new investors, the consideration that causes the most concern, is figuring out the best entry stocks. Just as with a new job or new business relationship, getting off on the right foot can have make a very appreciable difference to the success and longevity of the venture.
If you are just entering the trading realm, there are a few easy things to keep an eye out for when selecting entry stocks. Buy stocks that are currently priced below their perceived value. In general, their value with increase, positively affecting your portfolio. Additionally, invest in companies in which you believe. Look for companies that have great customer service and employee records. There is a good chance that these companies will remain stable, as they are clearly organized and well run, from the top, down.
In order to help you buy stocks that are currently priced below their perceived value, you have the P/E ratio. P/E or price to earnings is a way to measure a company’s value relative to its current stock price. Yahoo Finance provides an awesome tool that uses the P/E ratio called the Industry Browser. The way to use this tool is to look at the P/E for the industry as a whole, then find the company with the lowest P/E ratio when compared to the P/E average for the entire industry.
You can use this awesome free tool provided by Yahoo Finance by going to: http://biz.yahoo.com/p/753conameu.html
If you decide to use this tool just remember, it’s a good starting point for research but not an end in itself. There are reasons that companies are valued less relative to their peers. There are usually problems with the company or lowering forecasted earnings that have caused investors to undervalue these stocks. Use this tool in combination with other tools in your arsenal.
Another tool you can use in searching for undervalued stocks is the stochastic. When the stochastic is below 20, its being undervalued and is often a good entry. When the stochastic is above 80, its being over valued and is not a good price level to enter at.