How to Analyze the Best Stocks to Buy Now

You're young and you've got a lot of time to grow your wealth and make money. But how do you get started? You could start with the basics, like opening up a savings account at your bank or looking for ways to save on everyday expenses. Or, you could really learn how to invest in your future and start learning how to analyze the best stocks to buy now.

At Wealth Stack, we teach you how to do just that. Our founder is an experienced investor who has invested over $500 million in the stock market while working at places like Merrill Lynch, Emys Capital, and Claar Advisors. He’s spent decades learning how to make smart trades in the stock market and he’s here to teach you how to do just the same.

In this article, we’ll teach you exactly how to analyze the best stocks to buy now, no matter if they are new companies that have never been heard of before or well-established Fortune 500 companies. This is perfect for millennials who are eager and excited about investing their hard-earned money into something that has potential.

Do you learn better by watching videos? Ready to start investing right now? Download the Wealth Stack app for free to get started today.

How to Research the Best Stocks to Buy Now

What most people seem to do nowadays is to analyze stocks based on trends and memes. Sure, investing in GameStop at just the right time might have made you tons of money this year. The same goes for Dogecoin. However, if you’re looking to build long-term wealth by investing in stocks, it pays to understand what a good stock actually looks like.

First, it’s important to understand that a stock’s price doesn’t necessarily reflect the true intrinsic value of the business itself.

A stock’s price can be influenced by numerous other factors, such as the recent emergence of a new competitor or a fad on the internet that’s causing misinformed young investors to purchase just because everybody else is doing it.

This doesn’t mean that the value of a stock as it relates to the value of the company itself has been affected. To understand the true value of a stock, we suggest that you familiarize yourself with some terms and metrics.

The Basic Metrics to Use When Performing a Stock Analysis

The first, and one of the most popular, terms you’ll likely hear when you start to dig into the specifics of stock analysis strategies and terms is price-to-earnings ratio. The price-to-earnings ratio measures a company’s current share price relative to its per-share earnings. You can use this to help you determine the real market value of a stock compared to what the company earns (a lower P/E ratio is better).

You can take this one step further and also look at the price-to-earnings-growth (PEG) ratio. With this metric, you’re taking the P/E ratio and dividing it by the expected annualized earnings growth rate over the next few years. Why? It helps you understand the specific growth rate of a company in relation to others that might be growing faster or slower. Overall, you’re looking to invest in companies that are fast-growing over the course of a few years.

Then, you’ll also want to look at a company’s debt. While you can probably easily access that figure alone, it’s much more helpful to look at the debt-to-EBITDA ratio. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. A high debt-to-EBITDA ratio signifies that the stock is a bit risky. Why? It shows that the company has high debt compared to its earnings.

Using Porter’s Five Forces to Analyze the Best Stocks

Beginner investors often want to know what’s a “good” stock to invest in and what’s a “bad” stock to avoid. Aside from learning how to analyze the right metrics as mentioned above, it’s not that simple in some ways.

On the other hand, it can be as simple as plugging the business into a model that’ll tell you whether or not you should waste your time and money.

What’s the model? Porter’s Five Forces.

These five forces are:

  • Competitive rivalry
  • Threat of new entry
  • Buyer power
  • Supplier power
  • Threat of substitution

To dive deeper into this example, we’re going to use GameStop as a reference. After all, they recently made headline news this year.

Competitive Rivalry

First, you’d take a look at the competition. Are there tons of companies in the market that can drown the company out? Are the customers loyal to that one company?

Take a look at GameStop, for example, in 2000 versus 2021. GameStop had a massive and loyal following. They didn’t really have any major competition up until marketplaces like Amazon started to sell games and consoles online. 

Competition destroys businesses and profit. So if you see a company that you’re looking at investing in, rivalry and strong competition isn’t always a good thing. Overall, good businesses stave off competition, which allows them to keep growing and keep making profits.

Threat of New Entry

When looking at this, you’ll want to consider factors that have to do with the barrier of entry into the market. What’s the time and cost of entry look like for a new business to come in and shake things up? Is there some sort of specialist knowledge required to start and manage a similar business model that will threaten the existing businesses in the market?

Buyer Power

Really, the main factor you want to look at here is the cost of changing from one competitor to another, along with the number of customers in the market. 

GameStop was a great bet from 2000 to 2021 because there was such a large customer base for what they were offering. And, the cost of what GameStop was selling was at a feasible enough price point to where customers would continue to buy from the brand.

Threat of Substitution

Is there a threat of a substitute product that could enter the market and make the company you want to invest in less valuable? In the GameStop example, it was highly unlikely that anybody would enter the market with a substitute product. 

They’d been thriving for years using their business model and, despite the entry of new competitors in the form of online marketplaces selling games and consoles, there was never a threat of substitution for the product itself.

What does that look like? The death of the cinema is one great example. Movie theatres are dying due to the emergence of online streaming platforms and the growing popularity of home theatres. That’s a substitution of the product itself.

So, What Are the Best Stocks to Buy Now?

Well, now that you know how to analyze the best stocks to buy now, it only makes sense that you’d be able to figure that out for yourself, right?

Just kidding! We know that learning how to invest as a beginner is a process. If you’d like to take what you learned here and continue to build off of that knowledge, we suggest that you download the Wealth Stack app.

There, you’ll be able to continue to learn for free via immersive video courses. Then, you can start investing straight from the app. Because we allow you to invest in partial shares, you can get started for as little as $5.

Download the Wealth Stack app today and get started investing in you and your future.