How I Choose the Best Stocks For Long Term Growth [Beginner Guide]

How to choose the best stocks as a beginner?

When choosing stocks for the first time I always find it’s a good idea to start with sectors that interest you. This is your money and you’ll be a lot more excited in the beginning if it’s an industry you enjoy learning about. Then I dive into financial news. I use Yahoo Finance, Robinhood Snacks, Flipboard. I see what stocks are being talked about and I write them down if they interest me.

I look up Mutual Funds and ETFs and I look at the top stocks that are in them. They usually don't give you all the stocks. But, they will give you a few that you can put on your watch list. Also if I hear about a stock or want to check out a business I’ll put a note on my phone.

Once I have a list then comes my favorite part, which is analyzing the stocks.

How to analyze stock picks?

You should be able to answer the question. Why do I want to buy this company?

I like to pick stocks that have growth potential. They’re a leader in their industry or have the potential to be. That they have an innovative business model and has an economic moat. That is an advantage that a company has over its competitors. The bigger the moat the better. A lot of this will be reflective of the chart.

Examples of economic moats:

Strong brand name
Trade secrets
Network effects
Cost advantage
Unique platform
Earnings and Profitability

Once I have my stock I head over to their profile. I like to glance at their profile looking at their earnings. You can do this with TradingView, WeBull, or Robinhood. Current earnings should be greater than in the previous quarter. With a trend of increasing earnings over the past year. I like companies that are always beating earnings.

Return on Capital

How much it costs to generate profit. High Return on Capital means they do a lot with a little. Which is great. You can usually do a quick search and find this. When looking at the Return on Capital or ROIC. I like to see double-digit percentages so 10% and higher. If you can see a chart for the last few years you want to see an ROIC increasing overtime. But if you see a drop and then an increase that isn’t bad. You have to look into the fundamentals of that year. But generally, you want to be in double digits and growing.

Free Cash Flow

The money it can use to reinvest and pay for any situation that arises.

Debt

I do look at debt. But some debt is okay depending on the company you’re looking at. But too much debt isn’t good. You can look at the Debt/Equity Ratio. A higher ratio means a riskier but more profitable return on equity. A lower ratio means less risky but at the expense of lower returns. Younger companies and startups usually carry more debt. They have more risks and higher growth potential. So not all debt is equal.

Growth

I look at their chart. I use candlesticks for deep dives and swing trading. But sometimes when I have a long list of stocks to look up I’ll use the line chart. You want to see that the stock is in an uptrend.

I will go over my indicators in future posts. This is to get a general idea of a stock's potential. Once I check off these points I decide whether I want to invest and what price point.

To learn more about investing make sure to subscribe to my YouTube channel.

PIN IT

Disclosure: This post may contain affiliate links, which means we may receive a commission if you click a link and purchase something that we have recommended. Helping Tiffy to keep making cool posts and videos.