How I Choose Which Stocks to Buy

Here's a post that will probably have stockbrokers and investment professional shaking their heads. I'm going to share what factors in to me choosing which stocks to buy. Now, everyone is different and I am by no means a financial professional, which is why I think you'll appreciate this post. I hate reading prediction after prediction and "expert" after "expert" pick their stocks. My process is my own, but as you'll see from the stocks I own and the amount each has gained since I bought it, it's a pretty good method. Money talks and this post is screaming!

You can see which stocks I am currently holding if you look at the upper right portion of my sidebar. At the time of this post, I owned Costco, Apple, Seagate Technology and Sysco. I'll reveal why I chose to buy each of those now.

Each stock will be accompanied by a chart for this year's losses/gains. All charts courtesy of CNN.

Costco (COST)
costco chartSeveral factors went into this one. I was on the fence about buying Costco at the end of last year. What sent me over the edge was that they announced they would be paying a $7.00 per-share dividend to all people who were shareholders by a certain date. That date was about a week from the time I heard this. I knew the stock price was around $100. So right off the bat, I figured this was a great opportunity. Even if the stock went down as much as 7%, I'd still break even because of the $7 per-share dividend! Plus, I thought, "it's freaking Costco, they're not going ANYWHERE" and boy was I right. As of writing this post, the stock is up 12.5% since the day I bought it. Add in the $7 per-share I got and I'd say that was an excellent purchase. The stock continues to rise and we're holding onto it indefinitely.

Apple (AAPL)
apple chartThis is one that I wish I'd have figured out earlier. I got in at Apple a couple of years ago when it was right around $380 per share. Since then, it has gone as high as $700 per share. Like a dummy, I held onto it. Now it's down around $440 per share. I'm sure it will go back up, but in my mind, I could have had that money in Costco, or Seagate during that time and made a killing. But you win some and you lose some. The key is to win more than you lose. :D
So why Apple? Well, they are an innovative leader in technology, they are a household name and they have tremendous cash holdings. In my opinion, ANY technology company is risky, but I considered Apple to be lower on the risk totem pole. What's funny here is that I actually don't like most Apple products. I think they are incredibly over-priced and break way to quickly. While I like to buy into companies that I truly love, I also like making money, so there's that. The stock is up $65 per share since I got in.

Sysco (SYY)
sysco chartI worked in a restaurant for 10+ years and they got the majority of their supplies from Sysco. I knew this to be true for many, many restaurants in our city and beyond. They literally supply everything from chicken to bleach to toothpicks. I see the trucks all over the highway and have a good feeling about the business in general. I mean, restaurants are always going to need the stuff they sell. I also liked the fact that they pay a dividend of around 3.2%. The per-share price was good too: $31.71 per share. Now it is sitting at $35.11 per share, or a 10.72% gain from my date of purchase to today.

Seagate (STX)
seagate chartThis is my best purchase to date. I am actually looking at buying some more shares in the very near future. I used a different method for this one. I actually read "expert tips" about this stock. I had already heard of Seagate and recognized them as a leader in hard drives and other technology. I actually read about Seagate and Western Digital (WDC) around the same time. Well, WDC is up 48% this year, so that would have also been an excellent buy. What made me buy Seagate over WDC was their dividend. Seagate pays about 3.5% while WDC pays closer to 1.5%. I was still hesitant to buy because tech companies are generally risky. At the time, I had some stability in my portfolio and wanted to add some higher risk stuff, so STX was it! I bought Seagate at $25.56 per share and it's now at $43.45 per share for a 70% gain. I'd say I chose the right one, although neither one was a bad buy at that time. This is the kind of purchase that makes you wonder "what if" a lot. What if I had more money to put in at the time? What if I sold all of my other holdings and bought all STX at the time. What if all of my gains could be 70%? Obviously it's not a realistic thought, but definitely fun to think about!

Other stocks that I have bought and sold in past 2 years are Procter and Gamble (PG), General Electric (GE) and GameStop (GSE). I chose the first 2 there for stability. It's a good idea (in my opinion) to add a couple of well established, stable companies to your portfolio. PG is an extremely well established company that sells tons of commodities like toothpaste and toilet paper, which people always need. GE has been around for a long, long time and had a nice, low per-share price when I bought it. GSE was a little risky, but I thought they did a great job in the video game space. I sold PG and GE at moderate gains and took a small loss on GSE after I sold when the stock price dipped. If I would have been patient with GSE and sold at the beginning of last week I would have made around 30%. Another lesson learned!

My advice? I would suggest reading a little bit about any company before you buy into it. At the very least, look at the gain/loss charts from the past 2-3 years and get a sense of the direction the company is going. Push for dividend stocks. I like at least 3%, but sometimes (like with Apple) I will buy a stock without a dividend. Pay attention to the economy as well. 2 years ago was a terrible time to be holding most retail stock. Companies were going under left and right. Right around the time things started looking up was a great time to take a risk on a little guy. Take Tuesday Morning (TUES) for example. The stock is up 123% from one year ago. That's right, 123%!

What do I read? The one site that I do read a bit is CNN Money. They have easy to read charts for each stock as well as links to additional articles about those stocks. I'll usually read some of the articles linked there because they lead to reputable stock sites such as The Street, Zacks and Fortune. I try and read several articles on the same subject so I can find a stream of consistency. Remember, it's never a good idea to base a purchase (or sell) decision based on one tip from one article.

So you can knock my selection methods all you want, but the fact of the matter is that the stocks I chose to buy in the last 24 months have been knocking it out of the park. I just wish I had more money to invest because I'm liking the gains as high as 70%!

Comments

  1. John Abraham says:

    Woa! You’ve had some great luck with youu stocks. I’d love to see what you buy in the future.

  2. Keep tax rates in mind when purchasing stocks. When you purchase
    a share and you keep it for more than a period of one year, you are going to be taxed at the
    rate of a long term capital gain. However, if you
    sell the stock before the one year is finished, you are going to be taxed at the normal tax rate.

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