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How to know which stock is a great buy at current level

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Why can a stock be perceived as a great buy?
You may not know that there are a number of calculations and indicators to assess the growth and value of a stock and if you are planning to buy stocks then you need to be familiar with the indicators that indicate the stocks as a great buy. There are ample of reasons to get into the stock market. For the past few years, a number of potential investors are waiting for the right time to make an entrance. Consider investing in the stock market as a long-time strategy, which takes consistency and diligence. Investing can be executed on a macroeconomic level by buying a basket of indexes else on a micro-level with individual stocks.

A list of reasons are given to explain why stock is considered as a great buy

  • Mark the under-valued stocks: If you are taking an investment decision then you must not forget to study in details the fundamentals of the company. To get your question answered you need to compare the PE (price to earnings) of the industry to the PE of stock. In case the PE of the stock is lower, then the chances of the stock price going sky-high are much higher. An apt PE ratio estimates the connection between the earnings of the company and its stock price. It is estimated by dividing the new price per share of a company’s stock by the company’s earnings per share.

  • Earnings per share: This is the calculated amount each share would get in case the company decides to pay out all of its profits to a shareholder. EPS is estimated by dividing the total profit of the company by the number of shares. Suppose if a company's profit comes out to be $200 million along with 10 million shares then the EPS is $20. EPS informs you about how companies compare in the same industry. The companies which show consistent steady earnings growth for years are the outperform companies with unpredictable earnings over time.

  • Beat inflation: The stock markets are able to help the potential investors to earn more money since equity has been known historically to exceed inflation rates. According to the research of J.P Morgan the 50 year average for the customer price index that is used to measure inflation rates, is 4.1 percent. In accordance with the words of Johndrow, you need to be sure that whether your money is outpacing inflation or not. This takes place when the purchasing power of the money reduces over time. Even the Federal Reserve started to increase interest rates and getting guaranteed rate by buying corporate bond.

  • Price to earnings ratio to growth ratio (PEG): PEG helps you to understand the PE ratio far better. It is measured by dividing the PE ratio by the projected growth of the company in earnings. For instances, a stock with a PE of 30 projects earnings growth of 15% for the next year would have an earning growth of 2 (30 is divided by 15). Else a stock with a PE of 30 projects earning growth of 30% for the next year would come out with a PEG of 1. The PEG score is to inform you whether the stock is of good value or not. The lower the score the less you need to pay to get in on the expected future earnings growth of the company.

  • Mitigate your risk with diversification: You cannot deny the fact that risks can never be removed completely. It is shown that when a person diversifies with more assets he or she is able to get a better return. If an individual is holding the particular sector of the market underperforms, other investments would help to balance out the rest of the portfolio hopefully. According to the words of John Burke who is the president at Burke Financial Strategies located in New Jersey, it is wise for the investors to stay in the stock market for a minimum time period of 3 years. If you had a bad time then you are advised to wait at least for three years to get your money back.  

Go through the above reasons and have a clear idea why stocks can be perceived as a great buy.

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