3 Tips For Choosing Stocks To Invest

Stock trading is the most popular investment option and it can provide you with big returns provided that you make your choices carefully and smartly.

Following are the most important tips for choosing the right stocks to invest and make profits:

1) You need to take some time to compare the historical trends of companies and industries. Examining the historical trends will give you an idea of which companies within the industry have a better sustainability. Avoid choosing stocks that are moving in downward trend.

2) By comparing price and earnings per share for a company, you can analyze a stock's possible true value and predict its probable price evolution. The most commonly used valuation measure is the Price to Earnings Ratio (PER), which is the market price divided by the earnings of the stock.
For instance:
Info Industries Ltd. has made a net profits of $200,000 for the year, and there are 100,000 shares in that company in issue. The company stock is trading for $6 per share. then, the Earnings per Share (EPS) would be: $200,000 / 100,000 = $2. This would be the Earnings part of the PER Ratio. Now, the PER would be: $6 / $2 = 3. In general, the lower the P/E, the more undervalued the stock is and this suggests the stock is a good buy.

3) Choose stocks with increasing institutional sponsorship by institutions that have good recent performance. Stocks with strong institutional sponsorship are more likely to be the first to rise when the economy starts to improve.

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