What Companies Should I Invest In?

I’ve only bought stock once on a company that went bankrupt and my stock wound up worth pennies on the dollar. What I’d like to know is, what companies to invest in? I don’t want to make the same mistake twice.

To answer the question of “what companies to invest in?” the first thing to ask yourself is, what industry, business or particular company do you think will be most likely to appreciate in the future. Some time ago, the electronics business was exploding, making stocks of companies that manufactured consumer electronics appreciate substantially.

More recently, stocks of internet companies reached dizzying heights only to eventually crash and burn because many of those companies were not even making money before going public.
This led to the dot com bubble, which left many investors holding the bag. Nevertheless, many savvy investors took profits before the crash and invested elsewhere.

Computers and the manufacturers of their components’ stocks also had their day and some outstanding companies continue satisfying their shareholders with ever increasing profits and innovations. Other computer and component companies that could not compete eventually went out of business.

In order to better determine what companies to invest in, certain statistics about the company should be examined, such as the price/earnings ratio or PE. The PE consists of how much money the company has made in the year versus the price of the stock. For example if a company’s stock is trading at $20 per share and the company’s earnings are $2 per year, then the PE for that stock would be 10.

The company’s stock price of $20 divided by the yearly earnings of $2, equals 10. Generally the lower the PE number, the more likely the company will continue making its shareholders money. Many stocks of companies which are not yet making a profit or are showing losses will not have a PE number. While these companies can seem highly speculative, many major corporations have started out this way to become the leaders in their respective fields.
By InvestorGuide Staff

Copyrighted 2016. Content published with author's permission.

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