How To Pick Winning Stocks (5 Easy Steps)

okay let's talk about the formula for picking winning stocks because look i know it can be hard to narrow in on what to look for when trying to pick stocks there are so many things to think about so how can we fix that to begin we need to understand why certain stocks make us money what stocks we should stay away from and ask ourselves the age-old question how can we increase our chances of making money in the stock market in this video we will look at five stocks that you may very well want to own based off of some very important metrics and indicators in fact these are the first things that i look at when picking stocks we are going to go step by step so everything is clear and easy to follow so if you are ready then so am i let's begin ladies and gentlemen my name is alex pandrea let's get into the first thing that we must look at when trying to pick winning stocks this is actually the first thing that i look at myself any guesses here i'll tell you what let's play a little game pause the video and comment down below what the first thing that you should look at when trying to pick stocks and all right did you do it it was it was just me i know you didn't pause the video i can see you okay so a lot of people are saying price now what do you mean by price is it the price of the stock well not quite see the price of the stock would be how much you are paying for one share of the company this tells you practically nothing about the company's value what we want to be looking at is the market cap the market capitalization see the market cap is how much the entire company is worth on the open market in other words how much all the shares combined together equal so if i own a company and i break up my company into 100 000 shares and the market decides that each share should be traded for 10 then my market capitalization of my company is 1 million similarly if my friend's company only had 10 000 shares outstanding and their share price was let's say 100 then the market cap would be also 1 million dollars see now we have two companies one with a 10 share price and another with a 100 share price yet they are still worth the same amount so this goes to show you that the price of the actual share doesn't mean anything i like to think about the market cap as if i were to buy the entire company how much would you pay this is essentially what you're asking yourself when you're making an investment into a stock so now it is up to you to pick a range of market cap that would fit your risk tolerance a very low market cap can be very risky right i mean take a look at penny stocks who makes money off of those penny stocks nobody you probably lose all your money our ads actually say they can get rich quick on the other side you have the big boys right alphabet apple amazon microsoft these companies have market caps of over 1 trillion with a t which is crazy to think about or try to understand how large of a number that actually is it hurts my brain then not that that's hard to do but uh erotine aerotanya arrow airtight airtime the larger you get as a company the slower you grow typically right so maybe these big companies are not risky enough for you right for me i like to try to have stocks in my portfolio that i can catch that trend upwards towards one trillion as apparently this is the new benchmark standard so ask yourself what companies will inevitably join the one trillion dollar family now of course there are a lot of factors at play and evaluating a company and i plan to do a whole video series on how to value companies so you might want to subscribe and hit the notification bell just so you don't miss it but just keep it simple to start what companies are headed to a trillion dollars and what's my pick well i am going to go with paypal looking at its market cap of around 120 billion i feel that it is way undervalued just from the first impression they have been around forever and as a payment platform that is integrated in just about everything not to mention that they're also getting into the crypto scene we can check this off as an investing opportunity perhaps based off of the metric of the market cap okay next i look at the p e ratio which is the price to earnings ratio now stay with me because this is very simple trust me the price to earnings ratio is a ratio for valuing a company now there are many ways to value a company to figure out how expensive or inexpensive it is but the p e ratio is one of the most popular i would say because it's one simple number now this is sometimes referred to as the price multiple or the earnings multiple so when you hear somebody saying oh you are paying a high multiple for a stock that means it has a high p e ratio so the p e ratio is measured by taking the company's current share price and dividing it by its earnings per share so say i own a company and its share price is dollars and my earnings per share is five dollars then i would have a p e ratio of 20. now typically to find companies that might be a good investment to buy as in the price you pay is a good value for your money you typically want a low p e ratio relative to the industry or sector standard a low p e ratio might mean that the company is undervalued and investors tend to gravitate towards these lower p e stocks because this means that you are paying less for every dollar of earnings that they receive now a high p e ratio might not necessarily be bad it just means that investors are expecting high growth rates than high earnings in the future so they're actually willing to pay more right now for it hoping the company's profits catch up to today's figures now here's something very interesting that i didn't know for the longest time when you search a company and there is no p e ratio shown that means that the company doesn't have any earnings yet or they haven't reported them you can't divide the stock price by zero to come up with a p e ratio right so hence there would be no p e ratio which tells you off the bat that this company is not making any money yet and again based off of this and other things you go down the rabbit hole you do your research why aren't they making money did they just not report yet what's going on okay so for my pick for a winning stock based off of the p e ratio i am going to go with none other than meta meta has a p e ratio of 14 which is less than half of the sector standard usually tech companies have a higher pe because of their growth potential however meta's price got let's just say a little bit beaten down recently and while some might say at this level with a relatively low p e you are getting a good value for your money time will tell but for me i am adding this to my list of potential winning stocks based off of this metric the p e ratio now since we spoke about the p e ratio we now have to understand earnings per share or eps earnings per share is calculated as the company's profit divided by the shares outstanding the eps serves as an indicator of the company's profitability and what is something that we should all be looking for when wanting to buy a good company that's right somebody said it out there profit profit is the heart and soul of a company without profit you cannot grow and if you cannot grow then your stock price will in turn not grow and then if the stock price doesn't grow people will sell and that drives down the price and there's this whole domino effect that continues and it's all from profit so i think it's safe to say that the eps number is an important factor for picking winning stocks okay so let's say my company makes one million dollars of profit per year pretty good and it has a hundred thousand shares outstanding assuming i don't pay out any dividends or anything like that i would take the profit and then divide it by the shares outstanding and i would get an eps number of 10. so this means that every share of stock my company has it makes 10 of earnings now the higher the eps the more profitable it is likely to be and of course you should be comparing eps numbers across the particular sector so that you have a good understanding of what a high or low eps number is so using the eps metric what stock will i pick i'm gonna go with fedex now initially i was going to go with alphabet which has a very good earnings per share but for me it's already such a huge company and using that first metric of market cap i see more potential growth in something like fedex with a market cap of around 60 billion its eps is around 17 which means that it makes 17 of earnings for every share outstanding and from my experience in my company in my real company and not the one we're making up for this video in my real company i spend hundreds of thousands of dollars per year on shipping and shipping costs go up every year i love it so it is no surprise that a business like this can be very lucrative so yeah based off of the third metric eps i'm adding fedex to the list now learning all of these skills will only make you more successful and you can apply that thinking to anything that you want to do so i think we can conclude that the more skills you learn the more successful you will be this is where today's video sponsor comes in skillshare skillshare is a platform where experts share their expertise wisdom and experiences and learning from experts is the fastest way to become an expert yourself there is a wide variety of creators on skillshare that can teach you a wide variety of skills so you can build your knowledge in your area of interest and then use what you learn to grow personally and professionally for example learning more about finance will serve you for the rest of your life in fact it can be the best investment that you ever make so if finance interests us we can take a look at skillshare and see all the courses that they have to offer i found the modern money habits and personal finance master class courses to be incredibly useful and once you go through them they'll end up giving you the confidence to take your investing future in your own hands i'm going to leave a link down below that will give the first 1000 people to sign up a free month of premium skillshare courses thank you to skillshare for sponsoring this video and now let's get back into it alright let's talk about one of the most important metrics of picking winning stocks especially over the long run because you know investing is a long-term game right right anybody look making money in this market should be focused on compounding interest over time rather than just trying to trade in and out of companies hey at least that's my opinion call me crazy now you all know this metric already and you might already be using it in your portfolio but let's try to really understand it this metric is dividends dividends paid by a company means that the company is distributing some of their profits to their shareholders that's us this is sort of a reward for us buying and holding their stock now when i was 14 years old i first read a book that spoke about compound interest and showed a nice little chart of the compounding growth of the market with dividends reinvested over a period of 20 years and i thought to myself 20 years yeah like when i'm old it's been 20 years and if i would have started then investing in dividend-paying companies i would have way more money than i do now because the magic of compound interest takes hold and rises exponentially the more time you let it do its thing the math doesn't lie so instead of trying to pick the next big home run stock a more safe and consistent and proven approach might be just to invest in companies that consistently pay you a piece of their profits to ching chi ching thank you very much and then reinvesting that back in to grow your portfolio larger and larger over time now here's the thing with dividends there is always going to be a balance that you're gonna have to determine if it's right for you between the dividend paid out and the appreciation of the stock price now let me tell you what i mean a lot of the times when you have a high dividend stock the stock price itself doesn't grow as much or maybe even goes down this is why you rarely see high growth stocks pay out dividends because they decide that they would rather use their profits to grow their company even more rather than giving their money to you so here's an example a t famous company that pays a high dividend 8.7 percent dividend yield you might think to yourself score but look at its chart it has lost more than half of its value over the last five years so we probably don't want that rather we want a good balance so that we can collect a good dividend payment while at the same time taking advantage of the price increase of the stock okay so for this i chose the company jpmorgan chase it pays a 2.9 dividend yield and if you look at the appreciation of the stock over time you can see that your stock would have grown tremendously if you would have just bought and held this company and reinvested dividends along the way now for the fifth stock i am going to raise the question to you and really try to do this because i think it's important to start learning about companies and understanding what potentially winning companies look like and separating them from all the losers is there a company out there that would have the best of all worlds a market cap that is attractive to you not too high not too low a company that has good earnings and trades at a decent multiple and on top of that pays a good dividend as well do companies like that exist well of course they too and this is where good old-fashioned research comes in here i will give you a head start which of these companies would you invest in now don't be scared to do the work because i promise you it'll pay off the more you learn the more successful you will be not just in investing but in anything that you want to achieve if you want to see what i am investing in you can go ahead check out my patreon link is down below in the description more great content is to come on this channel so subscribe if you haven't already and do yourselves a favor you're going to want to check out this video here it's one of my favorites and i know you're going to love it thanks so much for watching and we will see you in the next video

Channel: Pandrea Money

Views: 18,019

Keywords: investing, how to invest, Robinhood, Robinhood investing, options, learn options, how to trade, how to trade options, how to buy calls, how to make money, how to make money online, how to make $1 million, how to be a millionaire, Robinhood trading, learn to trade, how to invest for beginners, trading, Andrei Jikh, graham stephan, finance, learn finance, Alex Pandrea finance, Robinhood tutorial, stock portfolio, selling options, best investments, how to pick stocks

Id: bDY_mp0QZMo

Length: 13min 58sec (838 seconds)

Published: Mon Mar 07 2022