Step 4: See what others think about the company/stock
Many investors watch analysts to see what they're recommending. Although this information can be useful both for idea generation and as a confirmation of your own research, it's dangerous to be too reliant on analysts. Some analysts do provide valuable recommendations and good earnings estimates, and some analysts do not cave in to conflicts of interest. But there are numerous potential conflicts of interest in analyst recommendations that can bias them. Analysts are the primary way that a public company draws attention to its stock. Positive attention helps the stock go up, negative attention drives it down. So analysts have something of value that companies want: power. Similarly, companies have something that analysts want: underwriting business. Secondary stock offerings and bond offerings generate big bucks for underwriters, so there is a compelling opportunity for mutual back-scratching, at the expense of the investor who naively believes that the analyst is an objective source of information. Additionally, analysts who don't give a positive rating to a company will often find it difficult for them to get information from that company and to get in on its conference calls. Jeffrey Hooke, author of Security Analysis on Wall Street, says: "If an analyst gives a negative report on a company, he might be more candid than others, but he'll get cut off from information. If he did that to multiple companies, he'd be unemployed." The result is that "buy" ratings are common and "sell" ratings are rare. Among the top Wall Street firms, less than 1% of all analyst recommendations are "sell" or its equivalent.
These are a good way to find out what other investors think of the stock and to find buried information that other investors have dug up. Keep in mind that a lot of the information posted to message boards is incorrect or misleading, so anything new you discover on a message board should be confirmed elsewhere.
Just as with message boards, blogs are a useful source of information and commentary, but all blogs are not equally reputable, so either find a few you trust or confirm what you find elsewhere.
Checking the amount of short selling is one way to see how many investors are extremely pessimistic about the stock. Look at the number of shares sold short (and how it's changed in recent months) as well as the short shares as a percentage of the float.
Insiders such as high-level employees and board members know a lot about the companies they work for, so it's important to watch them. The more shares they have, the more confidence they have in the company and the more incentive they have to maximize shareholder value. Also, if they've recently been buying, it's likely that they think the stock price will rise. However, if they've recently been selling it doesn't necessarily mean they think the stock price will fall. Insiders often start with large holdings and gradually sell in order to diversify. But if insiders are selling a lot or are selling more than usual, that can be a red flag.
You may find it useful to see what institutions are holding shares of the stock you're considering. The sites below list the major institutional holders, such as mutual fund companies.
Some sites try to assign a numerical rating to each stock as a guide for whether it's worth buying or not. These can be useful but should not be relied on too heavily, because most of them focus on quantitative metrics and often neglect qualitative aspects of the company, and most of them don't dynamically adjust their ratings as the stock's price changes.