Purchasing stocks is a great way to diversify your investment portfolio and create a more secure financial future for yourself. However, choosing which stocks to buy in to or keep an eye out for is usually something that seems a bit beyond the scope of knowledge for the average person without an economics degree. Luckily, there are a few tactics you can employ to help you find stocks that you can acquire at a bargain price without sacrificing in the long run. So if you’re just beginning your relationship with the stock market and aren’t looking to invest too much too quickly, here are some things to look out for in selecting bargain stocks.
Recently Dumped Stocks
A strategy some people use is to look for stocks that have recently been sold by a large number of people. While this is risky—people are probably selling this stock for a reason—you could see gains if you’re willing to hold onto the stock for a while. The market fluctuates, so purchasing a stock that has fallen doesn’t necessarily mean you’ll lose everything or that all value for the stock is gone. In fact, according to USA Today contributor Michael Krantz, when a lot of people start dropping a particular stock, the price can drop low enough that value is created, making the stock potentially worth your while to pick up.
The Piotroski Score
In order to know if a stock you are buying at a perceived bargain price is actually a good deal, you’re going to want to know the health of the company that the stock is attached to. If you purchase a stock at a low price but the health of the company is going downhill quickly, that stock isn’t going to prove to be a success for you. A great way to mathematically learn the health of a company is by finding their Piotroski Score. This stock selection strategy can help you to know if a purchase you’re contemplating making will be valuable for you down the road.
A Perfect Recipe
A lot of criteria can go into making a stock a good investment decision. While it’s tempting to just look at the initial price for purchasing the stock on the market, there are other factors that you should take into consideration before going after what you view as the cheapest option. According to Glenn Curtis at Investopedia, a good stock should have the right combination of a low multiple if no catalyst is in the future, interested investors, incentives and floats. If all these things come together in the right amounts, you should be able to feel confident that the stock you’re buying isn’t going to trick you into making a bad investment.
As with all investments, it’s best to talk with a professional before you make any large decisions. So to prepare you for that time, measure your prospective stock against the tips above to find a great bargain worth talking about.