How to Research Stocks
Researching stocks is very important in investing. You can't just buy any random stock. You need to know what you're investing in and why it is a good investment. You are investing in the future of a company when you buy its stock. As a shareholder, you plan for the company to grow and for the money you invested (by buying its stock) to grow too. This will not happen if you buy just any stock.
There are many ways to research stocks. I will be sharing a couple that I use below.
My favorite researching method (for long term investing) requires a bit of thinking. I scroll down Apple News to find articles about events that affect most of the world or just the US. I then think about how that event can affect the US stock market. Then, I do a much deeper dive into companies that may be affected by the news. Go to my "Portfolio" page and then click the link to my "long term investing" page to see my specific strategies to see if I should buy a stock or not. But it all starts from reading the news to get an idea for what companies will do in the future. It doesn't always have to be positive news either. If you plan on investing in options (check the options page), you can benefit off of a stock going down.
Another way to research stocks is to visit the Motley Fool channel on Apple News. (Motley Fool is a subscription-based financial website.) Most articles published by them give easy-to-understand stock recommendations. Motley Fool gives stock tips of all types from Small Cap stocks (companies valued from $300 million to $2 billion) to Large Cap stocks (companies valued at more than $10 billion) to articles on specific topics.
I create my watchlist on the stocks app. My watchlist is not extensive, though. It's because about half the time I do my research on the spot. If there is a huge market crash, I search to see which stocks went down the most. I also look at Apple News to see what caused the market crash and the Stocks app (I use Apple) to find out which stocks are up.
After you find a stock, you must determine if it is worth taking a deeper dive into. First, check its one year graph. Has it been trending up in price? If so, that's usually a good thing. If not, see if there's a reason why. Make sure you understand why the stock's price is moving the way it is. The, check its annual report. In a company's annual report, they talk about if they grew within a one year period and how they did overall in the past year. This will give you a good idea on how stable the company is and how they will do in the coming years.
The research you do also really changes depending on what your goals are for the stock. For example, you may buy a stock a day or two before its earnings are reported because you think that it had a really strong quarter, but you may not have much long-term belief in the stock. A lot of the investing I do is based on how overvalued or undervalued a stock is. I use the P/E ratio (the price to earnings) ratio and I check a stock's short interest to determine if the shares are trading at a reasonable price. The P/E ratio allows you to see if the stock has strong earnings to back up its price or if it's mostly speculation. A "good" P/E ratio changes a lot from sector to sector, so it's important to research what an average P/E ratio would be in the sector that you are going to invest in. I check a stock's short interest (how much people are shorting the stock, which is shown as a percentage of the overall available shares) to see what people's overall view of the stock would be. I would not buy a stock with a lot of short interest. If a stock is heavily shorted, the price will very likely be driven down. If a stock has high earnings but a low price relative to the earnings and not a lot of short interest, I will definitely be doing more research into that stock, and I may possibly buy that stock in the future.