It’s no secret we’re in an investing boom.
In fact, research from Finder.com.au shows nearly half of all Australians (49 per cent) own shares, with a surge of first-time investors making their way into the market during the COVID-19 pandemic.
But while it’s not easy to pick a winning stock, there are some tricks to the trade, according to Bell Direct’s Senior Market Analyst, Jessica Amir.
1. Become observational
“Notice potential trends forming around you and stocks that could benefit,” Amir said.
That means looking at trends in your workplace and home, or in your loved ones’ spending patterns, Amir said.
“Let’s say you notice more electric cars on your street,” she said.
“You also watch the news, and see more countries are banning petrol cars. This might prompt you to think about electric car makers that could see more sales.”
Or, you might consider companies who dig lithium out of the ground to sell it to electric car makers.
2. Is the company in a growing industry
You’ll need to determine whether the company you’ve picked is in a growing industry, or whether it’s benefitting from consumer behavioural shifts, Amir said. This could act as a catalyst to helping the company grow.
“Then dive deeper,” she said.
“Determine if the company is growing its market share in the industry... Companies who are growing their market share can see increased revenue and share price growth.”
3. Look under the company’s hood
After you’ve identified a trend, found a growing industry and determined if the company you’ve chosen is growing in that industry, it’s time to look at the financials: earnings, cash flow and debt.
“What’s key is companies with growing earnings, cash flow and reasonable debt have a history of producing better stock market returns over time,” Amir said.
“For longer term growth, also think about if these trends can continue over the next 3 to 5 years, as that’s key for future share price growth.”
4. Use technical analysis to back your decisions
You can take your stock-picking to the next level by pairing it with technical analysis, Amir said.
“Research has found that combining fundamental and technical analysis will give you a better chance of stock picking success.
“Put simply – technical analysis can help you identify potential share price trends and can plot where a stock could grow to.”
If you don’t want to do the leg work yourself, you can take advantage of online brokers like Bell Direct, who offer technical analysis tools. If you’re a Bell Direct client, you can also access Bell Potter’s stock research on the platform.
Diversification is key
“Whatever stocks you invest in, and whatever your strategy is, it’s important to understand that markets move in cycles - they go up and go down,” Amir said.
“One of the best ways to put shock absorbers in your investment portfolio is to spread your investing across different sectors, like Financials, Resources, Consumer Spending, Healthcare and Energy.
“You can go a step further and consider adding other investment products to your portfolio like ETFs that invest in international shares.”
To get access to Bell Potter’s stock research and the technical analysis tools mentioned, visit www.belldirect.com.au to become a Bell Direct client today.
Don't forget, you can still trade ETFs for free with Bell Direct until July 31. Sign up here and take advantage while you still can.