Stocks Worth Investing In | ProductiveandFree

As a rule, the stock market is generally accepted as being a solid long-term investment.

While bear markets do happen, it is worth remembering that new highs usually follow them. Moreover, over a rolling period of 20 years, the market has never lost money.

That said, it is important to note that individual stocks can fall for prolonged periods, even during times when the market is booming – some even never recover!

Therefore, if you are going to invest in individual stocks you should take the time to familiarise yourself with the traits of the ones that represent good long-term bets.

To help you do this, here are six signs a stock is worth investing in.

1. Steady Growth

The key to a good investment in the long term is to find stocks that have a solid track record of consistently growing their earning capacity.

Essentially, the more a company can demonstrate they have performed well in its marketplace, even in times of economic uncertainty, the greater its likelihood of being a decent investment over many years.

Occasionally you might see stocks that double in value overnight only to reduce just as quickly due to the business not generating enough earnings to justify the gains.

However, long-term winners such as the Westpac Share Price show investors a consistent growth in earnings, which they can rely on over the years and possibly even decades. Hence providing excellent potential to maximise their ROI.

2. High Equity Returns

Several factors can contribute to the movement of stock prices in the short term. But over the long term, what drives it up are profits.

Companies that earn high returns on equity are effectively telling investors that they do not need any extra money from them or debt sales to make significant financial gains.

Indeed, this characteristic is seen as so vital by some investment companies that they even use it as a qualifying metric in the first step of their process of assessing potential opportunities.

3. Plenty of In-Demand Products

While it is true that an individual stock can make significant gains through one good idea, the most successful ones, over a long period, tend to offer a wide range of in-demand products.

Companies with multiple brands often enjoy greater consistency in their earnings reports over those who only have one. That is because any short-term decline is typically covered by increases in others.

Subsequently, this usually results in their stock prices being less volatile and their long-term gains being more predictable.

4. Robust Management Structure

Sometimes, even a company that has plenty of in-demand products and services still might not be profitable, or at least realise their potential, This, is particularly true if they don’t have a robust management structure who have set actionable goals.

To deliver the kind of consistent growth and quarterly earnings that will make investors sit up and notice, it is worth noting how the management team of any given company are perceived. Do an online search for media articles that might give you clues to their levels of effectiveness.

Management Structure | ProductiveandFree

5. Low Levels of Debt

In the same way as a high consumer debt can slow down the personal financial growth of a household, high corporate debt can prevent a company from achieving high returns consistently.

During challenging economic times, companies that are managing a large level of debt could find themselves hamstrung by debt servicing payments that exceed how much revenue they generate.

By contrast, companies that enjoy no or very low debt levels are better equipped to ride out any economic storms.

It is worth noting that businesses that are highly leveraged can generate huge gains during times when the economy is good, they tend to operate on a ‘boom or bust’ approach which is not conducive to generating consistent profits in the long term.

6. Increasing Dividends

Ideally, when looking for stock worth investing in you want to find the ones that are ‘dividend aristocrats’. In other words, that pay out dividends which constantly increase over decades.

Granted, they might not seem as exciting as those stocks that have the potential to double in value overnight. However, they do provide steady gains in the long term that you can rely on.

Bottom Line

It is crucial to remember that stock prices fluctuate up and down due to several factors, some of which seemingly arise from nowhere. Many stocks are long-term investments that can help secure your children's financial future as well as your own.

While the characteristics outlined above will go a long way towards identifying which stocks might be worth investing in, you should never build your entire nest egg around the performance of one company.

If you have set yourself a goal to invest, make sure you build yourself a portfolio of several different stocks across various industries. Doing this will give you every chance of making a decent return for your money.