Identifying great stocks is challenging but there are some tools that make the job easier. Investing in the stock market for long-term is the process of identifying great companies, buying their stock at a great price and holding for the long-term as the stock builds wealth for you.
There are no easy answers or quick solutions to define great stocks. Long-term investors commit to a process of identifying and monitoring great stocks that are right for his or her personal financial situation.
This means what is a great stock for me may not be the right stock for you based on tolerance for risk, other stocks owned in the portfolio and other factors.
Since there are thousands of stocks available for investing in the stock market, for the process of identifying great stocks is eliminating all those that do not fit the label. This will be one of the first steps in deciding which stocks are right for you.
MorningStar has a great tool that can help you focus on likely investment candidates by comparing them to other stocks in the same industrial category.
This is very helpful because it lets you compare potential investment candidates with companies in the same industry that will face many of the same challenges as your investment candidate.
MorningStar tool looks at basic industrial sectors and then lets you drill deeper into each sector and look at all the companies that make up that stock sector.
The listing is a table with nine columns beginning with the stocks' names.
When you drill down into a sector you will see all the stocks in that sector ranked by market cap and with a number of performance time periods for you to review. The list gives you total returns for:
You can click on any column heading and see the stocks ranked by that parameter. For example, if you wanted to look at energy stocks and rank their performance for the previous 12 months, you would click on the one-year column heading and all the stocks are sorted by their performance for the past 12 months.
You can also use the sort feature to help find a particular company you might want to look at. Click on that sock name column and all the results were sorted alphabetically making it easy to find the company you're looking for.
While the short-term measurements are interesting, I always look at the five-year performance and give it the most weight. A five-year period means the company has gone through several economic cycles, which let you judge how well they might fare in upcoming cycles.
Of course if you want to look at the extensive detail MorningStar provides on individual companies, all you have to do is click on the company name and go directly to its listing.
This same tool lets you look at several other comprehensive rankings. For example, if you click on stock industries you'll see a long list of specific industries, as opposed to sectors, and you will be able to drill down and find the same information as listed for sectors.
For example, you can look at MorningStar's stock styles, which are value, core and growth in large, medium and small stocks. Click on one heading and you can find all the stocks the MorningStar list under that style.
This tool from MorningStar is a great way to get a quick look at a large number of stocks and identify some potential investment candidates. It is certainly better to do your research this way than to waste time guessing about which stocks might make good investment candidates.