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What Stocks to Buy for Maximum Growth
If you stop on by from time to time, you know that when it comes to determining what stocks to buy, I have a pretty set in stone formula that I personally like to use. For me, the best stocks to buy are those that come from well established companies, that at the time seem to be undervalued and that pay a good dividend. The idea here is to reinvest the dividends for further compounding sweetness.
That’s not what I want to talk about here.
For some, that type of a long term play just isn’t what their adrenaline seems to be looking for. Luckily for them there are other options when deciding on how to buy stocks. Another trick up my sleeve is to use the price-to-earning ratio (P/E), and earnings per share (EPS). I can’t claim the invention of this method (Is there anything new under the sun?), but it is a sound one when looking for what stocks to buy for maximum growth.
The idea here is that you will take the P/E of the stock and then divide that by the EPS growth in percentage. These are numbers that should be readily available to you, so let me go through an example. If the P/E is 24 and the EPS is 16 you would get 1.5. Now, what does 1.5 mean? Here is sort of the rule of thumb when looking for the best stocks to buy: if the number you end up with is 0.65 or less (particularly 0.5 or less), you are looking at some good stocks to buy. Between 0.65 and 1.0, you should stay put, just keep an eye on that one. From 1.0 to 1.7 you should really consider that selling that stock, and any more than 1.7, a definite sell.
That right there is the simplicity of the system, in a nutshell. Again, I am not the inventor, but had first read about this years ago on the Fool, however some minor tweaks above were made by myself over time.
So there you have it. When you begin to look for what stocks to buy, you can come on back and see if this might be the system for you. Remember that there are many different ways of buying stock and many different great stocks to buy, but in the end it is money management that will make or break you. Be wise both in choosing which stocks to buy as well as how much and where you invest your money.