Here’s how to uncover the most profitable stocks to invest in for portfolio growth and income

The most profitable stocks to invest in for your diversified portfolio will include not just blue chips, but also top growth stocks

To build a strong portfolio, we advise investors to look for blue chip companies that are likely to pay off if business and the stock market are good, but that won’t hurt them too much during those inevitable periods when business or the markets are bad.

For a true measure of stability, focus on companies that have maintained or raised their dividends during economic and stock market downturns. These firms may be some of the most profitable stocks to invest in, as they leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth.

Blue chip companies will bounce back faster after a market downturn

If you follow our three-pronged approach—diversifying across most if not all of the five main economic sectors, avoiding stocks in the broker/media limelight, and sticking mainly to well-established companies—then you can be almost certain of long-term gains in excess of what you’d get with any other investment approach.

True Blue Chips pay off

Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor.

Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.

If a deep or long-lasting market setback does occur, any aggressive stocks you own are likely to fall more than shares of blue chip companies. The eventual recovery of aggressive stocks is also less certain. That’s why we recommend that you hold the bulk of your investment portfolios in securities from blue chip companies.

If your stocks offer good “value”—if they trade at reasonable multiples of earnings, cash flow, book value and so on—then your risk is lower. However, standards change. Many attractive stocks now trade at 15 to 25 or more times earnings. If their earnings drop due to business conditions, and if the market p/e falls to, say, 10 to 15 times earnings, then even stocks of blue chip companies are going to suffer.

Take a broad view when looking for the most profitable stocks to invest in

 When we’re looking for the best investments to recommend in our newsletters and investment services, we start by putting all the important information we know about a company into perspective.

But things are never entirely simple. Your stock pick’s latest earnings may reflect unusually favourable or unfavourable conditions. This can make the company look safer or riskier than it really is. In addition, the company may put the funds it borrows to immediate profitable use, increasing its earnings and its ability to pay interest. It may plan to sell assets to reduce debt, or cut costs to increase earnings.

In the end, there are many ways to try to put the facts about a company into perspective. None are perfect, since all involve a mental balancing act between high and low estimates, history and the future, and faith versus skepticism.

The best stocks to invest in now have consistently paid dividends for many years

When you pick the best income stocks, you are, for the most part, investing in the safest and most secure companies. That’s in large part because of the dividends that the best income stocks pay. Dividends, after all, are much more stable than earnings projections. What’s more, dividends are impossible to fake; either the company has the cash to pay dividends or it doesn’t.

Top growth stocks can be among the most profitable stocks to invest in

Successful investors know the value of the best growth stocks to invest in right now and the potential boost they give to long-term returns. After all, by definition, growth stocks are those that have risen at a higher-than-average rate within their industries, or within the market as a whole. That can be over a period of years, or even decades.

Growth investing focuses on trying to identify and buy rising stocks when they have further growth ahead.

As with conservative dividend-paying stocks, dividend growth stocks offer investors a measure of security. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake—either the company has the cash to pay them or it doesn’t.

As well, you should always remember that while growth stocks hold the potential for greater gains than conservative selections, they typically expose you to a higher level of risk—even if they are dividend-paying stocks.

Use our three-part Successful Investor approach and find the most profitable stocks to invest in

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

What information do you use to determine how profitable a stock might be?


Tell Us What YOU Think

You must be logged in to post a comment.

Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.