How Do I Pick Stocks?

By Brendan Lee

Many investors identified stock investment as trading, but I identify stock investment as investing into the business of the company. Let me share how do I pick my stocks.
First I'll do a business analysis on the companies:
Company A sold 100 million units of product A at $1. Then the next year, company A sold 120 million units of product A at $1.20 (sold more products at higher price). Company B sold 100 million units of product B at $1. Then the next year, company B sold 120 million units of product B at $0.80 (sold more products at discounted price). Which is a better company?
Looking from a profitability perceptive, Company A is a better company. This is because despite rising the price of its goods, it is still able to sell more of its product, and resulted in expansion of its profit margin. This is a sign that the quality offers by the product is of superior quality, or this is a sign that the company possess certain competitive advantages.
As for company B, it tries to sell more of its products by lower down the price of its product (giving discount), thereby attracting more customers to buy its products. There is nothing fantastic about its business and management. Does this company sounds like some of the shopping malls in your neighborhood? Some shopping malls are only crowded with people when there is sales going on, when it has no sales, the shopping malls are so much quiet.
So what kind of business or industry will consumers willing to pay a higher price and possibly buying more at the same time?
1. Iron ore & copper suppliers (CVRD, Rio Tinto, BHP Billiton, Freeport Mcmoran, Southern Copper) Iron ore and copper supplies are mainly controlled by a few huge miner companies. So steel makers do not have much choice but end paying a higher price for the iron ore year after year.
2. Strong branding retailers (Apple) iPod from Apple costs $200 - $300 plus, somehow consumers are still willing to pay for this kind of price. Innovation is recession free, ever since Steve Jobs goes back to Apple, we have seen more and more innovative products coming out from Apple.
3. Oil rig contractors and oil services companies (Diamond Offshore, Transocean, Swiber Holdings, Schlumberger) As price of oil rises, demand for oil rigs increase as well. Oil rig contractors rise the rental of oil rigs to as high as USD600,000 a day now, and yet there are still demand for oil rigs.
4. Toll road companies (Anhui Expressway, listed in Hong Kong) If you need to drive from point A to point B, and the road that leads to point B is an expressway, you still have to go through this road even though price of toll fees increase.
5. Healthcare (United Healthcare) High price of healthcare services do not reduce the number of patients.
6. Niche industrial companies (Tai Sin, Armstrong Industrial, Yip's Chemical, Garmin Ltd and Google) Some industrial companies that have niche technology or competitive advantage enable them to command a higher premium for their goods and services.
After identifying the industry or companies that I'm interested in, then I'll do a financial analysis, reviewing their cashflows, debt level and valuation. I do not want to overpay a stock even though the company looks very solid.
If all looks ok, I'll invest some first, and buy more if fundamental continues to look strong.
Article Source: http://EzineArticles.com/?expert=Brendan_Lee