Stock picking is a matter of judgement based on certain parameters. Normally, experts deploy technical fundamentals and financials of a stock using various statistical tools and interpretations to pick up a value stock.
While that is surely a perfect way to pick a value stock, but genuinely, it is more suitable for institutions, high net worth individuals (HNIs) etc. with higher stakes, making bulk purchases for the long term. Nonetheless, it is important to keep in mind that nothing is sure and foolproof with surety for returns in the stock market. Risk and uncertainty are its integral components.
But an individual in general, and beginners in particular, with limited funds, time and smaller stake, typically, look forward to simple and straight forward tips and/or clues for picking up value stocks as a way to wealth creation in a sustained and steady manner for the medium- to long term to meet their certain financial goals.
So, here are a few easy, simple and yet dependable ways for picking value stocks out of a select lot of few stocks! That is to say, to begin with, pick up a lot of few stocks belonging to a high pedigree company, popular and market favourites, and try the following to pick up a value stock.
TRADED VOLUME OF A STOCK
Traded volume of a stock for a day and its trend for the last 3-4 days or more, identifying any bulk purchases by a broker, HNIs or an institution including foreign and domestic institutional investors etc., gives an important indication about the demand and likely value of a stock!
PRICE TREND OF A STOCK
Along with the traded volume of a stock over few days, the price movement during the period of observation might be revealing, especially whether the stock price is passing through the consolidation phase or not.
Buying a stock on reversal of price consolidation phase might be the right time to buy and vice versa. Say, for instance, a stock exhibits upper circuit or steady upper trend for several days. That might be the right time to book profit, deploying your own judgement devoid of greed, and reverse, the time to buy.
TREND OF DELIVERY OF A STOCK
Observing the trend of daily delivery of a stock for a few days could be a powerful pointer to judge the investor’s interest in a particular equity and your chosen stock. Higher average daily delivery of a stock implies greater preference and investors’ interest.
REVIEW
The quarterly and annual revenue figures of a particular stock and the trend over at least three years, could be an important indicator of the business level and performance of a stock. An upward trend over the past 3-5 years proves an important indicator to pick up a value stock.
PROFITABILITY
The quarterly and annual figures of profitability of a particular stock and the trend over at least three years, are an important indicator of the performance and prospects of a stock. This, along with a consideration for encouraging commentary of the company about its future plans, marks a cementing effect on the value of a company!
OBSERVE EARNINGS PER SHARE (EPS)
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. The higher a company’s EPS, the more profitable it can be considered. Thus, it serves as an important parameter to pick up a value stock.
THE FUTURE PLANS OF THE COMPANY
Note from the media ,TV and experts about the future plans of the particular company, concerning changes in the product line or product range, if any, especially entry into any value added or high margin product, expansion plans including capex plans, merger or demerger plans etc.
These futuristic indications serves as a potential indicator of the likely value of a particular stock. In this regard, any likely policy changes by the government also needs consideration. Listen to experts’ opinions and recommendations and make your own judgement to adopt.
FOCUS ON MIDDLE LEVEL STOCKS OF A PARTICULAR SECTOR:
Though top stocks of a sector are the most sought after, ideally, a small investor should preferably focus on the middle level stocks. This is because, the scope of appreciation in such stocks is probably higher than in the top ranking stocks, with relatively lesser risk.
THE DIVIDEND YIELD
Along with above parameters, a high dividend yielding stock should prove a confidence booster!
The author is a former employee of the Government of India and has worked in the agriculture sector.
Disclaimer: Views expressed are the authors’ own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.
