Jason Kelly suggests that if you want to invest in individual stocks, you should keep a stock watch list. The number of stocks in the watch list should be 20 stocks.
The worksheet criteria that you should keep for each of these stocks are:
- Company name, symbol, phone
- Current stock price and 52 week high and 52 week low: Growth investors often buy near 52 week highs and value investors often buy near 52 week lows. However remember that there is no ideal price.
- Market capitalisation of the stock
- Daily dollar volume: This is a measure of liquidity. For small cap investors, this is preferably between $50,000 and $ 3 million
- Sales or revenue.
- Net profit margin: Look at the trend over the last 5 years. A company you track must have a net profit margin in the top 20% of its industry
- Cash and Debt: Lots of cash and little or no debt.
- Sales/share: Look at the trend over 5 years and see if it is increasing or not( especially for growth shares)
- Cash flow/share: Look at the trend over 5 years and see if it is increasing or not
- Earnings/share: Look at the trend over 5 years and see if it is increasing ( for growth shares). For value shares often you get a discount because there is a dip in the earnings.
- Dividend yield: Important for large companies. Not important for small companies. Choose large companies with high dividend yields. For large companies the best time to buy is a stock whose dividend yield has been going down for the last few years and now has a massive jump( suggesting a price drop)
- Return on equity: At least 20% and maintained or improved over the years
- Insider ownership: The more, the better. For small companies, at least 20%
- Stock buyback: Yes means good.
- EPS rank: Percentage change between EPS for last 2 quarters compared with last two quarters of the previous year. Earnings growth record for the last 5 years. Average both. Rank all stocks. For growth investors, this should be 85 or above( top15%)
- Relative price strength rank: Returns over the last 12 months. Should be in the top 20% for growth investors.
- Sales and earnings growth: Average of at least 10% a year over the past 5 years. For small companies, at least 15%
- Five year percentage change: Value investors want this to be lower. Growth investors want this to be high.
- Projected sales and earnings: Large companies-10%, Medium companies-15%, Small companies-20% a year for the next 5 years
- Projected stock high/low: Both the high and low projections must be bigger than the current price and worthwhile to invest for that possible gain.
- Rankings: Value line timeliness 1 or 2. No ideal for safety. S&P ranking: STARS 4 or 5. Fair value 4 or 5.
- P/E: For value companies, P/E must equal the earnings growth rate. P/E that is half the earnings growth is very good. P/E below the five year average is also good.
- Average P/E: Average of the P/E ratios over the last 5 years. Needs to be greater than current P/E.
- Price/sales: For all companies except utilities, lower the better. Less than 2 is ideal.
- Price/Book: Not that important. Very low may be a bargain or a trap. Less than the five year average.
- Current ratio: At least 2 or above.
- Price/cash flow: Less than 5 or less than 3-5 year average.
- Simple moving average, MACD, RSI: Buy stocks in a strong uptrend.
Compare with competitors
Ask why the company has the numbers it has.
Buy gradually and sell gradually
Average down if you have researched well and the stock holds potential.