Hot Stocks

We often hear news analysts in the financial media talking about the latest “hot stocks” or which stocks are about to take off with no end in sight. The problem with the stock market is that everyone has an opinion. There are several channels on cable TV that are strictly devoted to business and investing. They continually have segments where they interview various stock market analysts. These stock analysts will tell the viewers what they think the latest hot stock picks are and pass along a few free stock tips as well, they almost always have a prediction about the broader market direction that can sound very convincing, especially to the beginning trader or investor.

If you listen to these so called experts in the financial news media everyday you will quickly get the impression that the stock market is always just about ready to take off. So why are all these stock experts, hedge fund managers, and other analysts always so positive about the stock market? Simply put, they are in the business of making stocks look appealing to you because their livelihood depends on it. If they can continually cast stocks in a positive light then there will be more business for them, mainly from all the stock market newbie’s and retail traders.

You will be better off in the long run not listening to the so called stock “experts” everyday on the big financial news shows. They paint stock trading as easy and make it seem like every stock is a hot one and about to take off. Investors also need to be skeptical of any newsletter, company, or investor who advertises hot stock picks. Many newsletters don’t work very well because they usually just provide a long list of recommended stocks. Once a few of these stocks perform well, they will boast of their stock picking abilities while ignoring the ones that lost money. So in the end, most newsletters subscriptions end up sugar coating their stock picks to make their performance seem better than it actually is. There are a few honest resources offering a quality stock newsletter, it just takes a little more research on your behalf to find them.

The main thing that every stock trader and investor should do when looking for hot shares to buy is look for companies that drive growth. You want to invest in a company that finances their growth from profits instead of borrowing money or selling more stock. Those companies that have at least a 15% return on equity are usually good potential stock picks. A company’s earnings estimates will tell you a lot about its performance as well. Savvy investors will look at a company’s past earnings as well as projected earnings; this will provide some credibility for the companies that have been able to sustain existing growth trends.

Investors also should be very skeptical about jumping on a stock just because it is cheap when looking for hot stocks and shares to buy. Every stock should be evaluated fairly and smart investors do not jump on the first cheap stock they come across before giving due diligence. You should look at a company’s price to sales ratio in order to determine its value and if their stock should be considered cheap. There are also many other factors to consider before deciding that a stock is cheap.

While fundamental analysis is necessary for finding the hottest stocks out there, technical analysis can be a very effective tool for timing your entries effectively. Getting in on a hot stock at the proper time is just as important as identifying it. If a hot stock takes off before you are on board you will end up chasing it; waiting for it to retrace back to a lower price before entering, then if this doesn’t happen you end up buying it much higher than you other wise would have. This is where technical analysis comes into play. Learning how to effectively read the price action on a stock chart will greatly enhance your timing of entry when buying hot stocks.