For investors, choosing stocks to buy can be a fun and rewarding activity. The activity can also bring in lucrative profits but on the condition that you buy stocks whose price goes up.
But when is the right time for you to buy stocks? In this article, the we will share 5 tips to help you identify the right time to buy stocks so that you have the opportunity to generate money from those stocks.
1. Buy When Stocks Are Sold Cheap
When shopping, consumers often look forward to promotions. Festive times are a prime example that low prices of goods will drive demand for a product.
However, for some factors, investors are not always happy when stocks are sold cheap. In the stock market, investors tend to buy stocks when the price is cheap.
The period after the market ‘crashes’ or experiences a correction is the best time for investors to buy stocks at a cheap price.
In addition, reviewing analyst reports is also a good starting point. Most financial websites issue consensus price targets projected by analysts. Without a target price range, investors will face difficulties when it is time to buy stocks.
2. When Stocks are Valued Under
There is a lot of information needed to set a target price range such as if the stock is being undervalued. One way to determine the level of valuation is by estimating the future growth prospects and profits of a company.
The primary valuation technique is discounted cash flow analysis (DCF). The technique takes into account the company’s future cash flow projections and then re -discounted against current cash flows using reasonable risk factors.
The amount of future cash flows that have been discounted is the theoretical target price. Logically, if the current stock price is lower than that value, you should buy it.
Other techniques include examining growth and comparing price to earnings (P/E) with competitors.
3. When You Have Done Your Own Analysis
Depending on the analyst’s target price or financial bulletin advice is a good starting point but a great investor does his or her own analysis.
The analysis includes reading the company’s annual report, reading the latest news releases and looking at some of the latest presentations to investors or industry trade shows.
All this data can be accessed on a company's corporate website.
4. When Patient ‘Hold’ Stocks
Once you’ve done the analysis, identify the stock’s price target accurately and if the stock is undervalued, don’t expect the price to go up immediately. Patience is important.
A stock takes time to trade at true value. Analysts who project a stock price in the next month or quarter, only give a prediction that the value of a stock will increase rapidly.
It is advisable to consider holding the stock for three to five years especially if you are confident in its ability to grow.
5. The Most Important Factor Is…
Leading analyst Peter Lynch recommends that investors buy stocks they know like their favorite store at a local mall.
You can get to know about a company through the Internet or talk to other investors.
Combined with all of the above tips, use your common sense in choosing the right time to buy stocks, can provide the most profitable results. To get into the world of investing or stock trading, you also need a broker.
