How To Buy Good And Cheap Stocks

Many investors like to invest in "cheap" stocks in the market because they can pick up a lot of stocks for little money only. However, most of the young stock market investors do not realize that the stocks they bought cheaply belong to a company involved in bad situation with poor management. You should avoid these kinds of stocks even how cheap they are!

How to buy cheap stocks? Stocks are usually cheap for a reason. You should only buy cheap stocks when you have good reasons such as the follows:
(i) The company has a proven track record like a consistently good EPS (Earnings Per Share), sufficient cash flow, and great ROIC (Return On Invested Capital) performance. If free cash flow is positive that means the firm has done a good job of managing its cash.
(ii) Look for companies that have strong brand names, with good customer relations and patents or proprietary technology.
(iii) Buy stocks with good management and employee relations.

If the company has such an amazing track record, why is the stock so cheap? Most of the time, stocks are cheap because of a temporary problem with the company or because the stock market is bearish. A bear market provides excellent opportunities to buy stocks at a bargain price. Investors should look for stocks that are not only cheap but also present "good value".

* Next: Things to Consider When Choosing a Stock