Q:

How do investors choose the most profitable stocks?

A:

Quick Answer

Investors choose profitable stocks by comparing company profitability, company earnings, market psychology, risk factors and stock valuation. The biggest factor in predicting a stock's profitability is the company's current total profit margin, according to MarketWatch.

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Full Answer

A profitable stock is defined as one that produces a level of return that is sufficient compared to the risk inherent in the stock. Risk is determined by examining a company's stability. Profitability is determined by comparing the current stock price to expected earning increases and future stock performance. The criteria for assessing company stability include good financial standing, the track record of the CEO and management team, and a consistent history of customer satisfaction, explains Howthemarketworks.com.

Another way to choose a profitable stock is to look for those with relatively low prices before they are expected to increase in value significantly. The decision to purchase a stock in this scenario is based on the amount of time the investor is willing to hold the shares. For short-term investments, the timing of when to buy and sell becomes a high priority. Short-term investors also weigh market psychology more heavily in their investment decisions. Long-term investors weigh risk factors more strongly, and company stability and profitability are more important investment criteria, states Howthemarketworks.com.

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