(Christine Collins)
Even if you’re not real confident in your ability to manage money (that’s why there trained professionals like me out there, to help you with this), you’re probably familiar with the term – “Buy Low, Sell High.”  This is the secret behind every financial genius - Get a great bargain, and turn it around at a higher price, making this is a great time to start investing in the stock market. You may feel gun-shy, intimidated or frankly despondent in view of the current economic crisis but let’s face it- financially sound companies will recover and survive!

So, this is where I get to ply my trade and share some more secrets for successful portfolios (hey, what can I say, some mothers pass on a great pasta recipe, my mother taught me a great portfolio recipe).  What should you look for in a stock?  Here are some tips to get you started…  

But first, the best place to find information. Thanks to our capitalistic society, every company has to publish certain financial information. It is conveniently and freely available on Google Finance, Morningstar and MSN -  to name a few websites.  You may also find this information on the company’s website, usually filed under Investor Relations. If you are having trouble sleeping you can also request the annual report or download it from the company’s website. Mining an annual report will give you in-depth information about a company’s future plans for marketing, R&D, and thus growth. It also includes the disclosure of past and current investing, and credit strategies, which is becoming increasingly more important in today’s financial analysis.

Tip 1: Do your Research:  Like any good bargain shopper you have to look around for good companies selling at low prices.  The best place to start is your own life. What do you buy and use, daily, weekly, and monthly?  Make a list as you go about your day. When 6 friends tell you that they cannot live without their blackberry, write it down, check it out! Is the company public? (Blackberry is made by a public company called Research in Motion; listed as “RIM”). When look at technical stocks it is imperative to do research on the company.  Be sure that the service or hardware has longevity, and is the leader in the industry.  With technology the key is cash not innovation. If a company has great products and ideas but no income to launch the product, it will be made (rapidly) by a company who can launch the product.  The company should have a lot of cash and a good balance between production and research and development.

Tip 2: Use your Common Sense: Common Sense is the secret to financial analysis.  If a company’s stock is cheap, growing, and has little debt that may be a good company to buy.  How do you find out?  Here are some fundamentals to look at:

Cheap?

Take a look at the current stock price. Compare it to its 52 week high/low.  That will give you a quick indication of whether or not it’s cheap. Look at the P/E (Price Earnings Ratio). This ratio tells you the price of the stock relative to its earnings per share. For example, if a company earns $1.00 and is trading at $10.00 then the P/E is 10.  The stock is trading at 10 times its actual earnings. You want to compare this with other companies in the same industry.  If the P/E is low in relation to industry peers this gives you a good indication that the stock is currently undervalued.

The best deal I have seen lately is a fiber optics company.  Corning, GLW the current P/E on this stock is 3.47 and the industry standard is 15.23. For good reason....due to the recession many investors believe that consumers are currently not buying flat screens, which is true.  However this company has solid financials and a lot of cash to get through this down cycle.  Also the price of flat screens has decrease which will encourage consumers to buy.  

Growing?
EBIT/Operating Income: Take a look at the Earnings Before Interest and Taxes over the past couple of years; (usually on the income statement it is called Operating Income). This shows earnings after expenses, essentially the profit of the company. Take a look at the past 5 years, if the operating income has increased the company is growing. This is the operating income for Netflixs, NFLX,

• News: If the company is growing, what is its goals/plans for the next couple of years.  How is it going to continue to maintain and grow its revenue stream? If you think the company has a good plan then maybe it’s a good company to buy.  This kind of research can be fun…..say if you wanted to buy stock in Coach, it makes sense to do your do diligence and check out the fall fashions reviews.
  

Debt?

Debt/Equity Ratio: Total Liabilities/Shareholder Equity.  This ratio describes how much the company has in long-term debt in relation to how much equity is in the company.  This basically shows whether the company has the cash to last out the debt?  Two things to look out for with this ratio: How is the company doing in relation to their peers/industry?  What was the past Debt/Equity Ratio?  A high Debt/Equity ratio is not necessarily bad; it may mean that the company has taken on additional debt to expand. That is actually a good thing.  If that is the case go back to the news.  Has the company acquired other companies?  Are they opening new locations? Adding on to services?  If the increase in debt fits with the plan/goals of the company then it is positive debt, much like the debt you take on when buying a house, “Good Debt”. But keep in mind any debt=risk so more debt makes the company more risky.

Tip 3: Dividend Yield: A dividend yield is always attractive especially during turbulent times. If a stock pays a dividend which increases every year the investor is assured a growing income stream regardless of fluctuations in the stock market. A good dividend stock right now is Johnson and Johnson.  Their current dividend yield is 2.9% and is diverse enough to withstand the recession and will not run the risk of cutting the dividend to investors.

Tip 4: Still thinking, hey all this research sounds fun (or maybe not so much fun) but I’ve got a career and a personal life?  Or to quote one of my favorite movies, The Princess Bride, asPrince Humperdink said to Count Rugen, “You know how much I love watching you work, but I've got my country's 500th anniversary to plan, my wedding to arrange, my wife to murder and Guilder to frame for it; I'm simply swamped.”

Don’t worry!  While doing your own research is fun and interesting, remember you can always check your ideas with a registered investment advisor. For more information go to: www.mlcollins.com

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