This post is about what is probably the most popular question in the stock market. Everyone wants to turn $100K into $1 million overnight by making the right investment, but the truth is that the very nature of investments makes them very unpredictable.
However, there are certain ways to determine which stocks will explode, as experts have compiled a set of analysis strategies that work to "predict" the future of stocks in the market. In the following sections, I’ll share some of those tips and guides so that you can analyze a stock for yourself and determine whether or not it's worth investing in.
#1 Get To Know The Market
The first and most important recommendation is to learn about the stock market. In other words, learn everything you can about investing, about the different kinds of assets and trading instruments, leverage, brokers, fees and everything related to investing in stocks. You can find most of this information online, but subscribing to a stock newsletter (here are a few good options) will make the entire process easier while at the same time providing valuable recommendations and insights into the market.
Understanding how the market works is essential to choose the best companies to invest in. It empowers you to make informed decisions and to gain confidence as time goes by. Eventually, you’ll get to a point where you’ll develop your own investment strategies and run experiments to test out your own theories.
#2 Look Out For Stocks That Are Already Peaking
One of the fastest and most efficient ways to identify a possible "explosion" is to look out for stocks that are already in motion. What I mean is, if you’re looking at the charts and the stock you have in mind has a low trading volume, and its numbers are always pretty much the same, then this means that there’s very little chance that it will prosper soon.
The best thing you can do is look for stocks performing better than the others, the ones that really stand out. Learn to differentiate the performance of each of the stocks, and you will be able to determine which ones are about to take off. Remember that when a stock is already going up, there’s a higher chance it will continue to do so than another stock that has been stagnant for some time.
#3 Do Your Research
Without a doubt, the most important part of choosing a good stock to invest in is doing some good and deep research on each option. This means verifying that it’s a real company and not some kind of scam and looking for a specific set of data that will allow you to analyze their performance in the stock market.
These are some of the data points and information you should look for and evaluate to determine if a stock is worth investing in or not:
- Price-to-Earnings (P/E) ratio. A way of gauging whether the stock price is high or low compared to the past or other companies.
- Price-to-Earnings-Growth (PEG) ratio. This is a valuation metric that helps identify stocks that are undervalued. A PEG ratio of less than 1 is what you’re aiming for; the lower, the better since it implies that its stock price should eventually rise.
- Price-to-Book (P/B) ratio. The P/B ratio is a valuation metric that compares the total value of a company’s shares to the company’s net assets. A value less than 1 is ideal, although many value investors also consider companies with a P/B ratio of up to 3. However, any higher and it’s a risky investment.
- The company’s annual report. This is a document provided to shareholders that describes the company’s operations and financial performance for the previous year.
- Quarterly earnings. This is a quarterly filing made by companies to report their performance.
- Securities and Exchange Commission (SEC) filings. These are regulatory documents that companies must submit regularly. They usually provide some of the most accurate information on a company’s performance.
At first, it will seem difficult to find and make sense of all this information. However, it becomes much easier as you learn. A simple Google search is usually enough to find everything you're looking for.
A Word To The Wise
Please note that even if you subscribe to a well-established investment newsletter like Capitalist Exploits and find investment suggestions that include all the data you need, you should always perform your own due diligence to cross-check that the data is accurate before actually investing your money.
Never Invest More Than You’re Willing To Lose
When it comes to deciding how much to invest, there’s something you should know. Even if you do the best research possible, cross-check everything twice or thrice and find incredibly promising stocks that seem like a sure win, there are no guarantees when investing in the stock market. There will always be the possibility of losing a part or all of your investment, and if you’re trading with leverage, you could end up on the hook for more than you have. So, the golden rule to follow, especially when you’re just a beginner at trading and investing, is never to invest more than what you’re willing to lose.
The Bottom Line
All things said, it is possible to have a good idea of which stocks are about to explode, but it’s impossible to be 100% sure. By following these tips, you’ll be able to identify promising investments that may or may not explode but that are almost sure to rise and generate a profit.
Always remember that the stock market is characterized by being unpredictable, but by doing previous research and analysis, you’ll be able to make better decisions and become a profitable investor.