Strategies To Invest in Stocks

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As an individual investor, you have one of the best advantages in the stock market. You are small and nimble, and therefore able to invest in stocks which the big boys can’t.

However, most retail investors lack a systematic approach to stock investing. Instead, they rely on news and friends to make recommendations, and buy/sell shares without certainty.

To help you, this page provides numerous stock investment strategies sorted by categories. While technical analysis relies on charts and patterns, stock investing requires a deeper understanding of financial terms and concepts, which we reference Investopedia for your convenience.

Growth

A strategy whereby an investor seeks out stocks with what they deem good growth potential. In most cases a growth stock is defined as a company whose earnings are expected to grow at an above-average rate compared to its industry or the overall market.

Growth in CFO > Growth in Net Income – example

Value

The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company’s long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.

Price to Book Value – example

Warren Buffet Strategy – example

Piotroski’s F-Score – example

Net/Net Strategy – example

FCF/EV – example

Combinations

Combining analytics criteria is what Investment Firms and Analysts do best. All it takes is some creativity and understanding of financial ratios, and you can come up with your personal recipe for investment success.

Growth At Reasonable Price (GARP) - example

Low P/E + Low P/B + Market Cap + Dividend Yield – example

Low P/E + Low P/B + Gross Margin Growth + ROE growth + EPS Growth – example

Sales + Earnings from Ops + Profit Margin + Free Cash Flow + Few Analyst Coverage – example

High Free Cash Flow Yield + High Return On Capital – example

Low Beta + Large Market Cap + High Dividend Yield – example

Small Cap + Few Analyst Coverage + Positive EPS Revision +  Low P/B - example

Operating Efficiency

A level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs. Efficiency is an important attribute because all inputs are scarce. Time, money and raw materials are limited, so it makes sense to try to conserve them while maintaining an acceptable level of output or a general production level.

ROIC > WACC – example

Sales/Employee – example

High Current Ratio – example

Inventory Management – example

Sector Rotation

Not all sectors of the economy perform well at the same time. Sector rotation is a portfolio manager’s attempt to profit through timing a particular economic cycle. It is a strategy used by investors whereby they hold an overweight position in strong sectors and underweight positions in weaker sectors.

Steel – example

Rare Earth – example

Shipping – example

Fetiliser Makers – example

Patents – example 

Property Bubble – example

Power Generating – example

Gold Miners – example

Global Diversification – example

Ride on Currency Strengths – example

Price Action

Technical analysts, or technicians, select stocks by analyzing statistics generated by past market activity, prices and volumes. Sometimes also known as chartists, technical analysts look at the past charts of prices and different indicators to make inferences about the future movement of a stock’s price.

Death Cross – example

RSI oversold – example

Income

Income investing, which aims to pick companies that provide a steady stream of income, is perhaps one of the most straightforward stock-picking strategies. When investors think of steady income they commonly think of fixed-income securities such as bonds. However, stocks can also provide a steady income by paying a solid dividend.

Growth 5-10 Formula – example

High Dividend Yield – example

Earnings

Earnings are perhaps the single most studied number in a company’s financial statements because they show a company’s profitability. A business’s quarterly and annual earnings are typically compared to analyst estimates and guidance provided by the business itself. In most situations, when earnings do not meet either of those estimates, a business’s stock price will tend to drop. On the other hand, when actual earnings beat estimates by a significant amount, the share price will likely surge.

Increasing Earnings – example

Gross Margin + EBITDA Margin + Profit Margin – example

Positive Surprises – example

 Volatility

A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

Low Earnings Volatility - example

High Beta - example

Corporate Actions

Any event that brings material change to a company and affects its stakeholders. This includes shareholders, both common and preferred, as well as bondholders. Splits, dividends, mergers, acquisitions and spinoffs are all examples of corporate actions. For example, a company may decide to split its shares 2:1, leaving shareholders with twice as many shares as they had before.

Analyst Ratings – example

Insider Buying/Selling – example

Credit Ratings – example

Others

P/E Mean Reversion – example

Have a stock picking strategy you would like us to help you research? Contact us here for a quotation, with clear instructions for your strategy. We will email to you the list of stocks which meet your criteria, within 3 business days.