Quality Stocks

Investing in individual stocks is the most rewarding way to increase your wealth. There is however, a greater risk when choosing this type of investment. As with any investment, the greater the risk, the higher the return. The following are easy ways to determine which companies to invest into.

Preparation
Before you can begin this rewarding path, you need to start an account with an online broker. I suggest you invest a minimum of $2,000 and to choose TDAmeritrade as your brokerage because I have had good success with their site. Other online brokers you can choose are E-Trade, fidelity, and scottrade.

What to look for
The name of the game is buy low, sell high. What this means is that you do not want to invest in a company that is already doing good. This is where many people lose money; they feel the price of the stock will continue to rise, but in all actuality the price will begin to drop. What you need to look for are undervalued companies which have potential to become hot stocks. Your emphasis on the evaluation needs in chart and financials because nothing else really matters.


Charts
The first thing you need to do is examine 10-20 year charts. History is a great guide for showing potential in companies. Take for example a company which I really like, EDGW. From 1996 to 1999 the price grew from $14 to $40, and since 1999 the price has been around $4. This shows that the company has great potential to become hot in the next years to come. I purchased 600 shares when the price was around $5, today it is at $7.50 which has given me a 40% return in two years. I feel strongly that April of 2008 the price will skyrocket and I will more than double my money, which would mean that I have averaged 25% AYP.

You also need to look for seasonal patterns. Look to for what season the price is the highest and lowest. Some companies are cyclical, so if you hold off investing until the low season, you can assume that in the near future the price will begin to rise. I have done this a few times, owning a company for 3-6 months and then selling it to make a 20-30% profit.

Financials
This is the real predictor of under valued companies. What you want is a company with a low Price to Earning ratio or P/E. You want a company that has a high rate of income compared to the price of the stock. In other words a company could be doing real well, but investors have not notice the company yet once they do, the price will rise significantly. Also this is a company which has potential to be purchased by a large corporation. If a merger like this happens you will know it because in a matter of weeks or even days, the price will rise more than 50%.
A company which I have purchased, and a great example is ABAT. This company has one of the lowest P/E of any company in its sector. It also has a pattern of having enormous spikes about ever 5 years. I bought this company in back in Dec. and the price has risen almost 30%. I feel the price will slowly drop this year, but there is great potential for it to skyrocket to 400% to 600% in the next two years.

Volume
The volume is the rate at which the stock is being bought and sold. When volume is high the price is either rising or falling, but if the volume is low, this shows that investors what to hold onto their stock. Low trading shows that investors see value in the company and potential for price to continue to rise. A low volume also is the best time to buy because the price is inflated my emotions.

Summary
Purchase under valued companies before they become hot.
Evaluate charts to see to ensure the company is at a low.
Check the financials to ensure P/E is low.
Buy when the volume is low.