If you are an ardent follower of the stock market, chances are you have analysed and identified some stocks that you think will give consistent good returns. But how will these stocks play out in the long run and affect your investment portfolio? Will they give consistently high returns according to your set goals? Many of us are perplexed while discerning which stocks are good and how to pick stocks for long-term investing?
Long-term investing requires you to be disciplined, look at the correct indicators, build substantial long-term investment objectives and identify stocks accordingly. While the market is full of uncertainty – investment strategy and indicators can help you pick stocks that are good long-term buys. Let’s take a look at a few…
4 fundamental factors – How to Pick Stocks for Long-Term Investing?
- Observe the dividends that companies pay from their retained earnings. If a company is paying dividends consistently, that can indicate its good financial stability. The consistency will assure you of its future earning pattern.
Let’s take the example of HDFC Bank share price is Rs. 1390 currently. HDFC Bank consistently gave dividends to its shareholders every year from 1997 to 2021. Its dividend percentage rose from 8% in 1997 to 650% in 2021 as the company witnessed long term growth.
- Calculate the Price/Earnings, i.e. P/E Ratio of the company, to determine if the share is overvalued or undervalued. A higher P/E Ratio indicates that the stock might be overpriced, since the current price is high as compared to the earnings per share. A lower P/E Ratio is preferable. Comparing the P/E Ratio of the company to other companies in the same sector and using other indicators along with this will also give you a fair view.
- Evaluate the past and future earning projections. It will help you understand how the company’s earnings have been affected in different economic cycles. If the company’s earnings grow consistently over a more extended period, chances are it will pay well in the long term.
- Assess if the stock is of good value at the current price by using the debt ratio and the current ratio. Another example to consider – Bajaj Finserv share price is currently around Rs. 6,600. When you analyse it, the solid fundamentals and consistent dividend payments will show the reasons for its consistent growth.
It is crucial to consider economic factors as well
The economy also impacts the growth and sustainability of a company in its sector. Sectors with frequent changes in government policy might have more uncertainty than sectors with well-formulated set policies. The global economic changes also impact the economy’s strength and the stock prices over some time. You need to assess the big economic picture while picking long-term investing stocks.
To Wrap Up
Online investing for the long term can be tricky. You need to set a time horizon and conduct your own extensive research covering the aforementioned indicators to select the good stocks for long term investing.
You can also avoid the lure of penny stocks and hot tips and instead rely on proper information-based analysis. Remember, it takes discipline and patience to invest and gain returns in the long term.
Happy Investing 😇
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.
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