How to Pick Good Stocks

Good Companies Earn Money Reliably

Successful companies generate cash year after year. You can spend time chasing buzz, but that rarely helps you find the best investments. Publicity does not pay the bills. Focus instead on businesses that have stable revenue, durable customers, and sensible cost structures.

When you limit your search to companies that are worth owning as businesses you lower risk. Good stocks are simply shares in good businesses, so start there and work outward.

Great Investors Think Like Owners

Think about a business you would be happy owning. You do not need an accounting degree. You need to understand how the business makes money and why it will keep making money. A practical owner asks a few simple questions: what does the company sell, who are the customers, and who are the competitors?

Start with what you know. Your hobbies, the products you buy, and the industries your friends work in are fertile places to find ideas. If you can describe how the business earns revenue and how it could grow, you are already well on your way.

You probably already know this about several companies.

Whether you're passionate about airplanes or model cars or fashion, you can probably come up with a list of a dozen companies worth investigating. Find out if they're publicly traded. Get their names and market symbols.

How to Choose a Stock to Invest In

There is no single stock everyone should own. What matters is finding the right stock for you. A right stock is one that belongs to a company that earns money reliably and that you can value sensibly. Narrow your list to companies you understand, then decide if the current price gives you a margin of safety.

Great stock picks are simply good businesses available at good prices. That combination is not common, but it is discoverable if you do a bit of homework and wait for opportunity.

What makes a hidden gem? That's the subject of Trendshare's investing articles. Trendshare's value investing strategy looks at the past several years of history for every business to analyze the basic financial numbers. The result is an analysis of what the company has done and it produces a fair price you shouldn't pay more than for a share of the stock right now. (This technique has served people like Warren Buffett and Benjamin Graham very well.)

The rest is up to you.

How to Pick Stocks with Trendshare

Make a short watchlist of companies you find interesting. Run them through the Trendshare stock analysis and shrink the list to a few candidates worth deeper study. For each candidate, ask yourself: do I know how this company makes money and how that could improve over time?

Use our investing guide to learn the steps of setting up online buying, making a first investment, and assembling the pieces of a convincing investment case. The work is simple: study, value, and wait.

There is no secret formula that does all the work for you. Good stocks are out there. Be prepared, do the research, and be patient when the right price appears.

How to find undervalued stocks using this checklist

Finding undervalued stocks does not mean chasing the lowest price. It's finding quality businesses trading below their intrinsic value. Start with the checklist here focus on companies where the numbers tell a consistent story.

Look for businesses with stable or growing revenue, positive free cash flow, and reasonable debt levels. Check if the P/E ratio is lower than the industry average or the company's historical range. Compare return on invested capital across several years to see if the business earns strong returns consistently.

Most importantly, calculate a rough intrinsic value using conservative growth assumptions. If the current stock price gives you a 20 to 30 percent margin of safety below your estimate, the stock may be undervalued—and worth buying! Use the Trendshare stock analysis to see our calculated fair value for any publicly traded company.

Remember that undervalued does not always mean cheap in absolute dollar terms. A stock trading at 100 dollars per share can be undervalued if the business is worth 150 dollars per share. The goal is to buy assets for less than they are worth.

Beginner stock checklist - 5 steps to research a stock

Step 1 - Make a short watchlist

Write down five to twenty companies you know a little about. Pick names from your hobbies, the products you buy, or industries you understand. This is not about popularity, it is about familiarity and starting points for deeper work.

Step 2 - Understand the business

Describe how the company earns revenue. Who pays it, what do they buy, and what makes customers stay? If you can explain the basic economics in a few sentences, you have a framework for judging the company.

Step 3 - Check core financial ratios

Look at valuation and performance ratios over several years. Key ratios to review are price earnings, return on invested capital, and free cash flow. See the examples below for how to read trend lines and what to drill into next.

Step 4 - Estimate intrinsic value

Use conservative assumptions to estimate what the business is worth. If the current price gives you a reasonable margin of safety, it is worth further consideration. If not, file it for later and move on.

Step 5 - Decide position size and buy plan

Plan how much to buy, when, and whether you will use dollar cost averaging or invest a lump sum. Set rules for trade costs and rebalancing before you commit.

Key ratios to check

Price earnings (P/E)

Price earnings gives a shorthand for valuation. Look at the ratio across a cycle and not just the current number. A single low P/E may hide weak earnings or one time gains; a simple trend will tell you more than a single point.

Return on invested capital (ROIC)

ROIC measures how well a company converts capital into profit. Higher ROIC over time suggests durable competitive advantages. Compare ROIC to peers in the same industry for context.

Free cash flow (FCF)

Free cash flow is the cash left after investment. Positive and growing FCF is a strong indicator that a company can pay dividends, reduce debt, and buy back shares. Trendshare shows normalized FCF to help remove one time items.

See an example analysis on Apple (AAPL) or run a stock through our Trendshare stock analysis.

Frequently asked questions

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