The investment universe is vast, showing over 7,000 stocks, and many more if participants are willing to look. How do successful traders and investors narrow the universe and identify stocks to watch? Trading strategies vary widely. In addition, so do the stocks that support these strategies.
Consequently, it is important to identify stocks that support profitable strategies. This article will discuss stocks that consistently reward traders if those traders are able to execute the strategy. In addition, we will analyze metrics that make these names the best for a stock watch list.
Market Leading Stocks To Watch
The simplest of all strategies involves buying strong stocks and selling weak stocks. This bull market is longer than any other. For that reason, many stocks are extremely strong and continue to trend higher. Additionally, traders sell weak stocks providing them with capital to purchase strength.
The Boeing Company (NYSE : BA) designs, commercial jetliners, military aircraft, satellites, and other defense services worldwide. This name has history dating back to 1916. Readers identify with this company if they ever traveled in an airplane. They own a large part of the commercial jet market share. The Trump Administration promised to bring American companies tax breaks and support their domestic production. Whether for this or other reasons, BA stock rose over 100% last year. These returns are far superior to the market in general, making this company a certain stock to watch.
In addition, the company just had a blow out earnings quarter. These events are rarely luck, causing analysts to raise their targets for the stock. This brings new buyers to the table, driving the stock higher. Finally, this domestic large cap stock to watch also offers investors a dividend of 2%.
Bank Of America Corporation (NYSE : BAC) provides banking and financial products and services worldwide. This usually sleepy stock woke up over the past year. It produced returns over 30% this past year, making it a top stock to watch.After the financial crisis, many banks merged and faced trading sanctions.
However, recently tax cuts and a focus on less regulation brought these names back to life. This stock just recently achieved a price-to-book (P/B) ratio of over 1. It is hard to believe that one of the biggest banks in the country was trading at a discount to its real value. The stock is still cheap, allowing for real upside.
Characteristics Of Stocks To Watch
All recent research shows that relative strength is a strong indicator for abnormal gains. It makes sense to buy the strongest stocks in a bull market based on this research. Relative strength is an easy indicator to identify, and when combined with other value metrics provide a road map for profit.
Relative strength is another way of saying absolute return. It is not to be confused with the relative strength index (RSI). RSI is a technical indicator that identifies trend strength. Naive investors believe they miss the move if a stock runs without them. Consequently, the miss the entire move instead of buying the strength. This simple reason is why many funds underperform their benchmark.
Valuation measures tell investors how much they pay for a company relative to other companies. Value investors seek discounts to the market. Conversely, momentum investors seek high valuations believing they will continue to grow. For this reason, it is important to identify the best value alongside the highest value.
Valuation Methods of Stocks To Watch
A company is a collection of assets used to produce goods and services. Therefore, analysts obtain a theoretical value based on how well the company uses these assets. This method is called Net Net Working Capital. This method works best with asset-heavy companies such as manufacturers.
This calculation gives us a relative basis on which to value peers of the same industry. It is not a cut and dry approach to stock picking, rather a thermometer of productivity.
A more common approach to valuation involves using current stock prices. Price-t0-earnings (P/E) ratio tells investors how much they are paying for each dollar of earnings. Investors believe that stocks in the same business should trade with similar P/E ratios or multiples. However, this is where different strategies become important.
Stocks to watch have valuations at either end of the value spectrum. Stocks with extremely low valuations interest investors. Conversely, stocks with extremely high valuations interest investors as well. How can this be? Value investors rely on buying cheap stocks and selling expensive stocks. Momentum investors go with the trend in either direction. Expensive stocks are usually trending higher, causing trends to last much longer than expected. For this reason, stocks with extremely high and low valuations are stocks to watch. They will have constant volume with large moves as players adjust their positions constantly.
Importance Of Volume In Top Stocks To Watch
Stocks move on volume. Without participation, names stay trendless for long periods at a time. In today’s market, stocks with low volume are bounced around during sessions by algorithms. This “ping pong” effect makes trading extremely difficult. Violent and highly suspect moves come out of nowhere and stop traders out, before returning to equilibrium.
Consequently, the market leaders and extremely valuation stocks are top stocks to watch due to their level of participation. They typically experience high relative volume during trading sessions. This shows actual trader interest aside from robots designed to take investors’ money.
Fresh news always makes the name a top stock to watch. New government regulation or any company news creates buzz in stocks. This buzz draws in participation as traders bet on what this news means for the future of the company. Furthermore, this news makes value investors reevaluate their valuation of the company. These names become a battle ground, creating profitable trading opportunities for savvy traders.
Can You Include Top Stocks To Watch In Your Trading?
Many believe that trading these top stocks is the only way to profit. Otherwise, the robots will invariably ruin edge as they artificially drive prices out of whack for a time. The best traders are well aware of these top stocks and generate massive profits from trading them daily. Using these metrics and examples given, a trader can find profit opportunities in the market day after day.