How to choose securities
When a person comes to the stock market for the first time, they wonder - which stocks should they choose? Your stock investment plan will depend on the investment strategy that you choose for yourself. However, there are certain characteristics of stocks that you should definitely pay attention to.
1. Earnings per share (EPS)
EPS is one of the first indicators that requires attention in a company's financial report when choosing stocks. The higher the EPS, the higher the profit you get per share.
While company's profit is an indicator of its efficiency, then revenue shows how the company conducts its business. Positive growth dynamics of revenue is a good indicator of the company's development.
3. Comparative evaluation of the company using multipliers-Relative Value
For many companies trading on the market, it is possible to conduct a comparative market assessment using multipliers. This method allows you to compare the estimated value of the shares of your chosen company with the value of the shares of a group of similar companies.
The main multipliers that we pay attention to are the following:
P/E Ratio(Price/profit),P/S Ratio(Price/revenue)
- P/B Ratio
- EV/EBITDA, EV/Sales
4. The ratio of borrowed and own funds–Debt/equity ratio
This coefficient shows how much borrowed funds there are for every 1 dollar of equity. Despite the fact that it is common for developing companies to take out loans, if the company's debt does not decrease despite growth in revenue and profit, it is worth thinking twice before making a purchase.
5. Dividend yield
Not all of the companies pay dividends, it depends on your investment strategy. But if you have chosen a dividend strategy for yourself, then it should be remembered that reliable issuers are distinguished by their regularity and accuracy in paying dividends.
6. Analyst Recommendations
Don't rely solely on internal company forecasts. One important source of information in the market is analytical reports. Despite the fact that each analyst has their own vision and forecast, their reviews help keep you up to date on the latest important events for your company.
Each bond issuance has several important parameters that should be considered before purchasing.
Yield to maturity (YTM)- the annual percentage return that an investor would earn if they bought a bond at its current market price and held it until maturity. YTM takes into account the coupon payments you receive by holding the bond.Whether a higher yield is positive depends on the specific circumstances. On the one hand, a higher yield to maturity may indicate an opportunity for a profitable deal, as the considered bond is available at a price lower than its nominal value. However, the key question is whether this discount is justified by fundamental factors such as the creditworthiness of the company issuing the bond or the interest rates provided by alternative investments. As is often the case with investing, additional comprehensive research will be required.
Maturity date- the date on which the issuer is obligated to repay the debt to bondholders. This day usually coincides with the date of the last coupon payment.Depending on the remaining term until the maturity date, bonds are classified as short-term, medium-term, or long-term. Usually, a bond with a maturity of one to three years is called a short-term bond. Medium-term bonds typically have a maturity of four to ten years, while long-term bonds have a maturity of more than 10 years. Regardless of the bond's duration, the borrower fulfills its debt obligation when the bond reaches its maturity date, and you receive the final interest payment and the principal amount that you loaned (the face value of the bond).To choose the term of bonds, an investor must assess their investment horizon and select securities with dates that coincide with their goals. It is also necessary to pay attention to macroeconomic factors. For example, if you believe that interest rates will rise, you should prefer shorter-term issuances or securities with floating rates. If interest rates are expected to fall, you can allocate a portion of your portfolio to longer-term bonds, thereby fixing a favorable interest rate for the investor.
Рейтинг.Rating agencies analyze the financial condition of each bond issuer (including issuers of municipal bonds) and assign ratings to the bonds being offered.Each agency has a similar hierarchy to help investors assess the credit quality of the bond compared to other bonds. Bonds with a rating of BBB- (by Standard & Poor's and Fitch) or Baa3 (by Moody's) or higher are considered "investment grade." Bonds with a lower rating are considered "speculative" and are often referred to as "high yield" or "junk" bonds. When choosing bonds for the long term, it is advisable to prefer larger issuers with high ratings, whose creditworthiness is not in question.
Liquidity.Another important factor in choosing bonds is liquidity. Indicators of liquidity are daily trading volumes and transaction frequency for the selected instrument. The more liquid the securities are, the more opportunities the investor has to sell them if necessary without losing their value.
The coupon rate– represents the amount of periodic payments for owning bonds.All other things being equal, bonds with higher coupon rates are more desirable for investors than bonds with lower coupon rates.
The frequency of coupon payments– how often you will receive coupon income.A greater number of interest accrual periods allows you to receive or add interest more times.
The coupon rate– the portion of the coupon payment that the new owner of the bond will pay to you if you decide to sell it between two coupon payments. This is one of the important advantages of bonds over ordinary bank deposits: bonds can be sold at any time without losing the accrued interest income.