Investing: How to size up your options when choosing stocks | Metro

It won?t come as a surprise to know that it?s pretty difficult to predict where the stock market is headed. If we knew what would happen, we all would have sold our tech stocks in 2000; we would have exited the market in mid-2008 and we would have all jumped in in March 2009.

While bad economic news out of Europe does negatively impact markets, and while investors are worried about America?s fiscal issues, it?s foolish for the average person to make bets based on what may or may not happen in the world. The only way to really ?play? the market is by investing in reliable, revenue-generating companies for the long-term.

What makes a company reliable? Typically, the best companies to own are in sectors that are impervious to an economic downturn. Food companies, for instance, do well in downturns because people always need to eat. Telecoms outperform too ? no one wants to give up their Internet.

Dividend paying companies have also been proven to be less volatile than non-yielding companies. The dividend ? a payout by the company to shareholders ? is often a focusing force for executives. They need to be prudent with their company?s money; if they?re not, and the dividend gets cut, investors will want to sell.

Large, multinational brand name companies do well over the long-term too. Their size make it less likely that they?ll go bankrupt; their international footprint means they have multiple avenues for growth and their brand name will keep people coming back for more. Think McDonald?s, Coke and Procter & Gamble.

Whether you pick stocks or invest in mutual funds, these types of ?blue chip? stocks should form the basis of most people?s portfolios. Some investors, though, may want to boost returns by buying what?s called ?growth? stocks. These are often small companies ? with a market capitalization of under $1 billion ? they?re in cyclical sectors that outperform during boom times and they?re companies with incredible growth. They are more volatile than blue chips, but, as the famous investing adage goes, risk equals reward.

It?s actually a good idea to hold both. Large-cap stocks tend to appreciate slowly, though the dividend will help boost returns, while the share prices of small-caps can increase quickly. A combination should give you some growth without putting your entire portfolio at risk.

Whatever you choose to buy, make sure you?re purchasing a company that isn?t going to implode in the short-term. So do your due diligence. Read what?s on Morningstar.com ? a popular investing website that analyzes stocks, mutual funds and exchange-traded funds ? seek out analyst reports and comb through financial reports. If you don?t have the time, talk to an adviser or buy a mutual fund, where the managers pick the stocks for you.

Ask any expert and they?ll tell you not to try and time the market. If you stick to solid businesses that will perform well in any economic environment, then your portfolio will eventually rise.

If you?re checking out a potential buy online, here are three numbers to look out for:

P/E
A company?s price-to-earnings ratio tells people how much an investor is willing to pay per dollar of earnings. Very generally, a P/E ratio lower than the market P/E means a stock is cheap; if the metric is above, the company may be expensive.

Dividend Yield
This number tells you how much money the company is giving back to shareholders. It often has two numbers next to it ? the first is the dividend per share, the second is the annual yield.

Price
The Share price is, of course, important, but it shouldn?t drive your investment decision. Apple costs $576, but it?s trading at a cheap 13 times P/E. Look at the share price, then look at metrics such P/E to determine if the company is worth buying.

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Bryan Borzykowski is a Toronto-based financialwriter and the author of Building Wealth All-in-One for Canadians for Dummies. Contact him at bryanborzykowski.com or follow him on Twitter @bborzyko.

Source: http://metronews.ca/news/canada/430967/investing-how-to-size-up-your-options-when-choosing-stocks/

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