Coronavirus panic has invaded the world financial markets: stock quotes are falling at record rates. It looks a bit scary, but if you are a long-term investor, what is happening can be considered as a unique opportunity that arises once in ten years.
By the way, the U.S. stock market showed consistently strong results after the 2008 crisis, allowing investors to earn +269% of real return or 12.6% per annum (including dividends and inflation) over the 11 years from early 2009 to late 2019. For us, it means only one thing – now is the best time. So, today we suggest you have a closer look at the current situation from the investor`s perspective and see what are the stocks to buy now.
Why Buy Shares in 2020?
Most investors are likely to understand that the capital market collision provoked by the COVID-19 pandemic is, in retrospect, going to be the greatest possibility to get shares across a generation. But it still doesn't make it any easier. As it was throughout the economic crisis twelve years ago, nobody can tell with 100% certainty what could follow alongside. We all know that the U.S. has not yet seen the worst if we speak about coronavirus problems. Considering the experience of other countries that were affected by the coronavirus outbreak earlier, next month or two may bring more bad news than good news. But more importantly, we also know that the problems are temporary. The number of new COVID-19 cases in China has decreased. It's going to happen in the United States as well. The economy will recover as soon as concerns about the pandemic have subsided. However, we do not know how long it will take for the wave of diagnosis of COVID-19 to decline. No one knows if the state stimulus packages will be of any help. And no one knows for sure if the stock market will continue to fall, and if so, how much.
Based on previous experience, buying the stock right now is a good idea for investors with a long-term perspective. Knowing that the American and world economies will recover should allow you to buy stock and feel good that you will make a solid profit over the next decade. On the other hand, those who know about it make it obvious that keeping a little cash on the sidelines to invest later is also a sensible step. We do not know how long the coronavirus crisis will last or how much longer the stock market can fall.
Holding cash to purchase shares at possibly sale prices seems right.
So, the right answer to the question, whether you are buying stocks now or waiting a little longer, is "do both". This approach should increase your chances of winning in the long run.
How to Find the Best Shares to Buy
Choosing the best stocks to invest in is pretty challenging since a lot of aspects need to be taken onto account. We have prepared for you some easy-to-follow tips that will simplify the stock-picking process.
Choose your company's business field.
The choice of the industry should be based on your interests and experience. For example, if you have a good understanding of interiors, pay attention to the manufacturers of furniture and household goods. If you love computer games, take a look at game developers and video card manufacturers. It is better to choose not one industry, but several, as you will need to distribute your investments.
Explore companies in your chosen field.
Compare companies from the same industry: maybe now dark horses are performing better than recognized industry leaders. To do this, go to the site of your interest (NYSE or NASDAQ) and check out the list of traded assets. Becoming a shareholder in a large company sounds good, and by definition more reliable. But it`s also important to pay attention to the second-tier players because their shares can take off any time.
Take a look at the company profile.
Scroll through all available information about the company How has it evolved? How did it transform itself? How have important events in the company's past impacted its stock fluctuations? What are the plans for the future? Quite often, the vector of a company's past movements determines its future development. Pay particular attention to earnings and loss statements.
Study the company's news.
The company's plans have a direct impact on your return on investment. If the company plans to release a new product, if it has made a discovery, it can play into your hands. Everything new generates interest and therefore increases the likelihood that the share price will rise, although it is not a guarantee of fast returns.
Explore the dynamics of the company and the industry
Assess the dynamics of the company and the industry in which it operates over the past few years. If the growth rate is falling, or worse, has become negative, then you should not look in its direction.
Read the analytics
If you haven't missed the previous steps, you've already done some analysis. Now you can turn to the opinion of professionals and see what they think about the prospects of your chosen companies. Large investment banks regularly publish their recommendations. The opinions of prominent experts and professional investors can be found on the Internet (including on their pages in social networks). Of course, analysts are not psychics, and they cannot predict the exact course of events. But a professional look can open your eyes to missed details.
Buying Shares: Risk Management
Buying shares is defined by a clear risk-reward correlation, meaning that high risks entail higher profits and another way around. Hence applying the rules of risk management is a must for every rational trader. Risk management comprises recognizing and estimating the potential risk and improving systems to reduce these and get the highest possible results.
Among the most important risk management tips are:
Follow the market:
Some traders think that investing against the market can bring them bigger profits. Nevertheless, following the trend is one of the most significant stock market approaches to decrease risks. The problem here is being able to spot the trend since the markets are volatile and always moving.
Diversification:
The stock market gives investors various financial assets, such as equities, bonds, derivatives, and mutual funds. Investors should choose several to diversify the investments. Additional diversification can be accomplished by adding companies relating to different areas.
Patience and Informed Decisions:
Many investors make prompt and careless judgments with each tiny fluctuation of the price. Furthermore, they always forget to take the time to do their research and due attention before making their decisions. Defining the financial goals before investing and concentrating on both short-term as well as long-term goals will help investors get maximum returns on their stock market investments.
Trading Plan:
Planning and improving the strategy help win wars. The same applies to the stock market. Creating a strategy will make all the difference between triumph and defeat in stock investing.
Buying shares: Technical Analysis vs Fundamental Analysis
Traders should consider fundamental analysis as the more rational, logical aspect of investing that helps you to estimate the financial "health" of a company and its possibilities. Technical analysis, on the contrary, can show us a lot about the psychological features of the market by examining prior market fluctuations in the company’s stock to predict later action. You can place a BUY order on a fundamentally solid firm, though in case its stocks have already soared too much, the position will not be that profitable, which could have potentially been avoided by adhering to technical analysis.
Fundamental Analysis
In case you employ fundamental analysis to choose where to invest your capital, there are several various aspects you can apply. Here are some of the basics:
Revenue
Revenue shows the number of sales business had in over some specific period of time, regularly announced on a quarterly and annual basis. The point here is to pay attention to the bias of revenues. Increasing sales are a positive thing. In case sales have dropped, it’s essential to check why.
Earnings Per Share (EPS)
Despite the fact that revenue is essential, earnings are certainly the backbone supporting the whole business. If a company’s sales are growing, but they cannot maintain those revenues because of the extreme costs or weak management, that’s a red flag. You should invest in businesses with increasing margins, and consequently growing EPS. You can check past EPS for any company just like EPS estimations for forthcoming quarters on all the websites concerning finance.
P/E Ratio
The price to earnings ratio of a business is only the actual share price divided by its annual earnings per share. Let`s say, a firm ABC is trading at $32 and it made $25 per share during the past 12 months, its P/E ratio would be 25.6. That indicates it’s trading at 25.6 times its yearly earnings. If investors employ a company’s valuation, they are usually indicating its P/E ratio. What’s a sound P/E ratio? It depends on who you ask, and it can also change by sector. For instance, high growth stocks like those of technology companies often trade at much higher P/E ratios whereas solid, more moderate growth companies trade at lower costs. This should make sense intuitively since if a business has tremendous increase prospects, then one should be ready to pay a much higher price relative to its current profits. Analysts usually differ on what makes a cheap stock because there is so much discussion about what a particular P/E ratio suggests for an outlined business.
Technical Analysis
Fundamental analysis is more qualitative and requires more subjectivity, while charts are the principal tool of technicians. Here are some basics:
Price Trends
The price trend will show us if the value of the stock going up or down, how long has it been doing so? Numerous chartists will solely buy assets that are in uptrends. They may hold the position till a short-term downtrend appears, however, they won’t even think of the stock that is in the lower level and requires medium-term trading.
Volume
Traders are used to saying that charts are like a Rorschach test for the market, but volume is its lie indicator. The volume will inform us of how strong the current trend may be. Declining volume may be a signal for the upcoming trend reversal.
Moving Averages
Applying moving average lines to a chart may assist define the overall trend direction. A moving average line simply outlines the average cost of a share for a set period of time. \
Which one to choose?
For quite a long time fundamental analysis has been the only investment system since there was nothing else available. It transformed with the appearance of high-speed computing, which made technical analysis easier and faster. Various big investment companies apply black boxes, or computer simulations, to define entry and exit points. It indicates that most of the largest players in the market base their trading judgments as per computer algorithms. One way or another, your investment is made by both technical aspects and fundamental ones.
The best thing to do is to include some blend of fundamental and technical analysis. Just pick stocks or any other asset that has solid fundamentals and later apply technical analysis to confirm the idea.
Best Shares to Buy in the US Stock Market
In volatile global markets, it may be not that easy to decide which shares to buy. Investors often prefer shares for which they consistently pay dividends. According to experts, in this case, one should pay attention to the so-called "dividend aristocrats". These companies usually have large capitalization, and there are no problems with free cash flow. According to analysts, these requirements are met by special equipment manufacturer Caterpillar and oil giant Exxon Mobil.
Caterpillar
The dividend yield of Caterpillar securities is stable at 3.01%. The company is a global leader in the market of large machine-building with a total share of 20%. This is twice the share of its nearest competitor from Japan, Kamatsu.
The corporation pays 35% of its annual net profit to dividends. In terms of free cash flow, Caterpillar's ratio per security reaches $7.45. As of today, the share price is about $114.
Exxon Mobil
The dividend yield of Exxon Mobil shares is 5.77%. The oil giant is the true leader among the dividend shares, and the corporation has been paying part of the profit to its shareholders since 1911, and for 37 years the amount of dividends has been constantly increasing.
Today, Exxon Mobil's free cash flow per security equals $1.93 with the share price of around $43. However, this is not bad for the oil sector, which is experiencing difficulties today.
According to analysts, the oil price is now at the bottom of its range. However, it should be remembered that Exxon Mobil has never stopped paying dividends, regardless of the general situation on the market.
Summary
The stock market is a stable source of passive income for investors. Short- or long-term investments in shares allow not only diversify the portfolio but also participate in the management of companies and corporations.
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