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Identifying the best stocks to buy has its challenges. About him London Stock Exchange, there are almost 2000 stocks to choose from. In international exchanges, there are thousands more.
Here, I'm going to reveal how I'll try to find the best stocks to buy for 2024. I'll walk you through my investment research process and highlight some stock picking shortcuts I use.
My investment process
There are several things I look for when searching for the best stocks for my portfolio.
This is a healthy level of revenue and profit growth. In my opinion, this is what investing is all about: putting money into growing companies. In my experience, when companies are growing, it is much easier to make money as an investor. I look for companies in growing industries that have strong tailwinds.
A competitive advantage is another. This is an “X factor” that allows a company to do something that others cannot. For example, it could be a strong brand or a niche technology. If a company does not have an advantage, competitors can emerge and ruin its growth story.
I also look for companies with solid financials. I like to see a strong balance sheet with minimal debt. I also like companies that can generate a high return on equity. Companies that can do this often grow a lot over time thanks to the power of compounding.
Finally I'm looking for a reasonable valuation. It doesn't have to be a low rating. I just don't want to pay a silly price. If I pay too much for a stock, my returns can be disappointing.
A good example of all this in practice is my purchase of right movement shared a few months ago. Rightmove has a strong brand and is growing at a healthy rate. It also has a magnificent financial situation. And it recently became available with a price-to-earnings (P/E) ratio of just 18. At that price, I couldn't resist buying more shares. Since my purchase, the share price has increased approximately 20%.
Three Action Selection Shortcuts I Use
Now, finding companies that meet all of the above criteria may take some time. So there are a number of shortcuts that I use.
First, I look at what professional money managers (i.e. “smart money”) like Terry Smith, Warren Buffett, and Nick Train hold in their portfolios. I keep an eye on the funds' monthly fact sheets. I also review 13F regulatory filings to see what US stocks top fund managers have been buying.
Following the smart money has paid off. For example, after looking at Smith's (Fundsmith Equity) a few years ago, I decided to invest in microsoft. Since my initial purchase, the stock has risen over 200%.
I also listen to investment podcasts. Every night I listen to CNBC half time report in Spotify while I walk my dog. This is a daily show where a handful of money managers discuss the stocks they buy and sell. I have found that it can be an excellent source of investment ideas. For example, it led me to invest in Uber few months ago. Since then, the stock has risen about 40%.
Finally, I read a lot The Motley Fool. With a wide range of writers covering both UK and US stocks, there are always some brilliant investment ideas here.
