Your Ultimate Investing Checklist to Screen for the Best Company Stocks
Are you interested in investing in individual company stocks for long-term gains? Have you decided that you have the time and mental fortitude to spend researching companies to find the best ones that meet your criteria and needs, depending on your financial goals, and with risks taken into account? If so, and if you have a list of companies you would like to consider investing in, here is a general checklist you may want to go over in order to screen them for your search for the optimal business.
Fundamental evaluation of company stocks
What are the company's projections for its continued growth prospects?
Is the company consistently growing its earnings? Or is it cyclical or stagnant? This is important to know, in order to be able to value its future cash flows.
What is the outlook for the industry and the company's gain in market share?
Is the business in a growing industry, with a lot of opportunity for growth, or an established, or declining industry? Is the company an industry leader or is it an up-and-comer? Does it have limited opportunities in increasing market share, is it gaining market share, or is it declining in market share?
Does the company have a durable competitive advantage?
This is very important, as companies without one can more easily be overtaken or lose or run out of business sooner. A durable competitive advantage can be in the form of a patent, brand, ability to be a low-cost provider, a network, or high customer switching costs.
Does the company provide a unique product or service?
Is it proprietary, or does it provide something that cannot be easily copied by someone else? Sometimes great ideas can easily be copied and run with, leaving the original creator in the dust.
Does the company have good reviews regarding quality customer service?
A solid company will have a well-established record of providing outstanding customer service, and pleasing its customers.
Does the company have loyal customers and/or established repeat business?
Ideally, you want the business you are investing in to have customers who come back for its product or service on a routine basis, in order to be confident in having consistent earnings projections.
How long has current management been in place and what is their record?
It is important to have management that have integrity, and have their interests aligned with that of the company. Hopefully, the business is not so complicated that it requires management to be highly intelligent or talented, as that can fluctuate with a change in personnel.
Is there an above average level of insider ownership?
It’s a good sign if there is a reasonably high level of insider ownership in the company, as it means management’s interests are aligned with the company. This hopefully results in decisions being made that they benefit from when the company does well overall.
Does the company utilize efficient retainment of its employees?
Businesses that do well over time often keep a stable level of employees, and do not attempt to have substantial layoffs when times are more difficult, or to try to raise the price of their stock over the short-term.
How concerned is the company regarding social responsibility?
Companies should be good stewards, not just to their customers, staff, and stakeholders, but to the community at large. ESG (Environment, Social, and Governance) investing has become more prevalent recently, as stockholders are trying to hold businesses more responsible to their employees, customers, and the world around them.
Sources of Information for the Above Checklist
Company Annual Reports: Found on the Company’s Website under “Investor Relations”
Yahoo! Finance
Motley Fool
Seeking Alpha
Morningstar
Google: for Company Reviews and News
Summary
Once you have reviewed the answers to these questions, and determined the shortened list of companies that you are interested in investing in, go to my blog post, “How to Successfully Approach Long-Term Investing and Screen for Individual Stocks By Value Investing,“ in order to learn how to check their financial fundamentals, to see if they are financially strong and well-managed. Once you have accomplished that, and figured out if their stocks are reasonably priced, you can more confidently invest in them for solid long-term returns, while limiting your downside risk, which, of course, is the general idea in investing overall, right?
As a reminder as to the reason for investing for the long-term in the first place, whether it’s in individual stocks, index funds, target-date funds, ETF’s, or other type of investment with optimal long-term returns with limited risk, you may want to read my blog post, “Your Path to Financial Flexibility or Freedom: The Power of Compound Interest,” to learn why may want to get started investing as soon as possible, to maximize your returns later on.
I hope this information helps, and I wish you the best on your investing journey.
Disclaimer: This article is meant for informational and example purposes only. I am not a financial advisor, and am not promoting the purchase or sale of any kind of securities. Also, I recommend that investing in stocks should be done within the framework of a comprehensive financial plan, with risks taken into account. You may also want to consult with a Certified Financial Planner.