Things to keep in mind to identify the best stocks to buy in 2023
The Indian stock market has had its ups and downs this year. After reaching its peak in October 2021, the benchmark indices have failed to hit a new all-time high.
The recent correction has shook the nerves of many investors. They are trying to find out when the stock market will recover. They want to know when the next bull market will start.
Changes in market sentiment have prompted investors to act in different ways.
Some investors are considering bulk stock buying, Some have already taken the leap. Others are cautious and buying stocks selectively and in small quantities. Still others are willing to invest only when the markets do something else right.
Most investors who are either buying the stock now or looking to do so in the near future have a long-term outlook. It is a good thing. This is the first step to successfully investing in this market.
Unless there is a rapid and strong correction in the market, short-term investors are unlikely to make much money. Thus being a long term investor is the way to go.
But that is only the first step. You will also need to identify the best stocks.
If you’re looking for the best stocks in 2023 and beyond, you’ll need to diligently follow a solid process to find them. And you will also need to buy them at a reasonable price.
In this article we’ll look at the process you should follow to identify high-profit stocks for 2023.
let’s get started…
loan
It is always a good idea to start with the debt levels of the company you are considering.
Ideally the company should have very little debt or be debt free. Many fundamentally strong stocks have zero debt.
check it out List of Debt Free Companies,
Also it’s a good idea to look for companies that are actively reducing their debt. Though they may have some debt today, they are unlikely to be badly affected by rising interest rates.
Dividend
Next, you should check out dividend payments.
Fundamentally the strongest companies have solid cash flow. They often share this cash with investors in the form of dividends. The best companies usually have a long track record of paying dividends.
In a stock market downturn, dividend-paying stocks are in high demand because investors prefer the safety of cash flows that pay dividends over capital gains.
These stocks can also give good dividend yield during market crash. This is because they fall initially along with the rest of the market. But as soon as their returns become attractive enough, investors jump in and buy them.
This means that high dividend paying stocks have in-built stop loss.
There are also excellent companies that increase their dividend every year. In these stocks, you get the benefit of increasing dividend along with capital appreciation.
They are called dividend growth stocks.
If you’re looking for a fundamentally strong dividend stock with decent growth, check out 10 Highest Dividend Paying Midcap Stocks,
growth
Companies that maintain good sales and profit growth in demand as usual during a downturn in the stock market. Check for good growth in topline and bottomline. The higher the better.
The market knows that these stocks are inevitably getting cheaper. That’s because higher growth leads to faster growth in earnings per share. This combined with a falling market makes these stocks attractively valuable. At a certain point, investors with deep pockets start buying these stocks.
Get to this point sooner in fast-moving stocks than slow-moving stocks. Unfortunately, these stocks tend to be overvalued at the start of a correction, so they tend to go further down.
It’s a waiting game with high-growth stocks. If you invest too soon, you can buy the stock before its valuation is sufficiently accurate.
But if you are patient then the stock market will give you a golden opportunity to buy these shares at a good price.
check it out List of fastest growing companies As well as the top growth stocks in the market.
previous track record
Although no investor has made profits in the past, it is still important to look to the past as a guide.
If a stock has been a multibagger in the past, it is worth examining whether it was driven by fundamental reasons or by speculation.
If the reason was strong fundamentals, and those fundamentals are still in place, you may have a multibagger stock on hand.
Dividend
Return on equity is one of the best measures of a quality company. If you filter out low ROE stocks strictly, you will get a list of stocks with high ROE.
High return on equity with low debt is a good combination to focus on when looking for stocks with the best fundamentals.
All great long-term stocks have good ROE. Just be sure to use it with metrics like high growth and low debt.
You must have heard of 20-20-20 stocks. These are a typical group of stocks with a minimum 20% sales growth, 20% profit margin and 20% ROE.
With this checklist you are already ahead of 90% of stock market investors. It won’t take you long to identify the best stocks to put on your watchlist for 2023.
Happy investment!
Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from equitymaster.com,
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)