Topic: Growth Stocks

New Stocks to Invest in Need Certain Characteristics to be Good Picks

The best new stocks to invest in need to have certain characteristics to be good choices for your portfolio. These include a prominent place in an industry, a history of earnings, a history of dividends, involvement in a fast-growing industry and hidden assets

When looking for new stocks to recommend, we look for a number of attractive factors.

These include a prominent place in an industry, a history of earnings, a history of dividends, involvement in a fast-growing industry, hidden assets, the possibility of a takeover bid, and many others.

Lots of investors do the same, although some have a risky tendency to put too much focus on a single factor. For example, they may place a high value on factors such as the involvement of a celebrity investor (Warren Buffett is a top example), or the environmental impact that a company’s products can have if they succeed—solar panels, for example. Others place a lot of weight on favourable comments in the media.


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Don’t focus on any one single factor when you look for new stocks to invest in

It can be a serious and potentially costly mistake to read too much into any single factor (or cluster of factors for that matter). In contrast, we think it’s far better to look at the broader picture. We try to figure out if the company’s business is likely to do well in the immediate business environment, how it might react to a business setback, and how likely it is to prosper in the years and decades ahead.

All in all, many of the stocks we look at have weaknesses that more than offset one apparently good factor. In our publications, we only recommend stocks that have the combination of factors that are likely to support sustained growth.

New stocks to invest in: look for hidden assets

If you buy a stock for its hidden assets, but those assets stay hidden or ignored by investors— or turn out to be less valuable than you thought—it can’t hurt you much. By definition, a stock’s hidden assets have not had much impact on its price. If you paid little if anything for the assets, you have little to lose. But the best hidden assets will eventually expand a company’s profit, grab investor attention, and push up its stock price.

The best time to find hidden assets is when they’re still hidden, long before the company begins taking steps to profit from them. Understanding and seeking out hidden assets while you’re evaluating a stock can add enormously to your profits in the course of an investing career. But you need patience to profit from them, because they can stay hidden for a long time after you buy.

Hidden assets can also cut your risk—and they are a key part of our Successful Investor approach. Stocks with hidden assets are likely to hold up better than those whose assets are easier to spot, since they are the last stocks that experienced, successful investors sell. When times are good, on the other hand, stocks with hidden assets tend to do better than average. Good times give them opportunities to put their hidden assets to work.

New stocks to invest in for emerging market access

High-quality stocks in the global stock market are a good way to diversify your portfolio. Moreover, many emerging markets, like China and India, have strong growth prospects. That’s because their population is generally younger than North America’s, and more of them have the potential to advance into the middle class.

Even so, global stock markets remain riskier than investing in North America. That’s because many emerging countries have weak investor-protection laws, language barriers, less commitment to openness, fairness and so on.

Emerging markets are still more volatile and vulnerable to economic downturns than developed nations. However, here are 3 simple ways for Successful Investors to tap into global stock market profits at lower risk:

  • International exchange-traded funds (ETFs)
  • Blue-chip U.S. companies with a high percentage of their sales in emerging markets
  • New York-listed American Depositary Receipts (ADRs)

New stocks to invest in as part of a “buy and hold” portfolio

Of course, there are a variety of ways to build an investment portfolio. Some work better than others. But our “buy and watch closely” approach has done well for our portfolio management clients over the past few decades. We recommend this approach for our readers as well. We start by applying our three-part Successful Investor approach for portfolio construction. 

Bonus Tip: Here’s what to do if you have too many of our “holds” in your portfolio.

If you mostly own stocks we see as “holds,” consider selling some of them and replacing them with stocks we see as “buys”. Of course, before you sell, you need to consider any capital gains tax liability that the sale will involve. You’ll need to weigh that tax cost against the benefit that the transaction will bring to your portfolio. You’ll also need to consider the effect that the sale of one stock and buying of another will have on your portfolio. You’ll need to consider how well the revised portfolio lines up with your resources, goals and temperament.

The complications are endless, but the basic rule is simple. When you own good stocks, it generally pays to hold on until you have a good reason to sell. When you own mediocre or speculative or bad stocks, the reverse is true. It generally pays to sell unless you see a good reason to hang on.

Many new stocks that hit the market come with higher levels of risk because they do not have a history of success. How do you factor this into buying new stocks?

What characteristics do you look for in a new stock purchase?

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