How To Find New Stocks To Buy

One of the more fun aspects of investing is finding new ideas. This is especially true if you’re a stock investor. Few things are more satisfying than looking for a stock with certain characteristics, and finding that perfect stock.

Unfortunately, this is also very challenging. For example, you may want to invest in a tech company with similar technicals to Facebook Inc FB. On it’s own, it wouldn’t be too hard to find a similar stock in that regard, but the process can become exceedingly more complicated when you consider other factors. Would you prefer to find a large-cap with a high dividend? Or a cheaper alternative with a lower price/earnings ratio? Or a stock with similar a earnings performance?

So how do you find new stocks to invest in? With the help of the Stock Discovery Engine in Chaikin Analytics, we’ve identified a few different paths you can follow to find your next investment.

The Chaikin Stock Discovery Engine uses quantitative algorithms, along the lines of what Spotify uses to find new songs, to make finding stocks that are similar to each other easier.

Start With Sectors

Stocks are grouped into 11 sectors (according to the Global Industry Classification Standard) for the exact purpose of organization—they make it easier for us to find stocks that do similar things. This makes sectors a great place to start when looking for a new idea.

Let’s take the tech sector. Sticking with our Facebook example from above, we can observe some of the stock’s characteristics, such as its market cap, earnings history, and current price.

After entering Facebook into the Chaikin Discover Engine, we can see other stocks with similar characteristics.

The stocks in the image below, though they do different things, are all tech stocks. This grouping allows us to assume that they all will, broadly speaking, that they will generally react to the same macroeconomic conditions.

Digging a little deeper into the fourth stock on that list, Check Point Software Technologies Ltd. CHKP, we can see that the software company has some similar characteristics to Facebook. Besides the fact that they’re both in the same sector, they’re both large cap stocks—meaning they’re worth at least $10 billion—and as of this writing they both have a history of strong earnings performance and are close to all-time highs.

These factors don’t necessarily mean you should invest in Check Point if you love Facebook,
but they give evidence that you might want to research Check Point further as a potential buy.

Consider The Technical Patterns

If you’re more inclined to follow technical analysis, you should consider a stock’s recent price behavior. Is it about to make a new all-time high? Or all-time low? This can give you a clue to look at a chart of a stock itself and see what it tells you.

There are many technical indicators you can use for this type of analysis. But if you’re not too familiar with analyzing stock charts and still want to see what the technical indicators can tell you, the Stock Discovery Engine can do the work for you. Accordingly, SAP SE SAP Broadcom Ltd AVGO Cisco Systems, Inc. CSCO and Comerica Incorporated CMA are all, at time of this writing, exhibiting similar price behavior to Facebook.

What’s The Overall Sentiment?

Sometimes, the overall market sentiment of a stock will trump all. You may have found several indicators that tell you a stock would be a good buy, but if the stock is out of favor on Wall Street, it could be headed for some near term downside.

When this happens, it may be worth it to look at stocks that the Street is positive on. Through the Discovery Engine we can see stocks that have similar characteristics to our Facebook example and are also in favor.

As of this writing, Wall Street is neutral on Facebook but positive on C R Bard Inc BCR Comerica Incorporated CMA Dow Chemical Co DOW M&T Bank Corporation MTB and Scripps Networks Interactive, Inc. SNI.

The Takeaway

Finding the right stock is hard. If it were easy, everybody would have a portfolio full of winners, and there’d be no need for professional asset managers.

But just because it’s difficult, doesn’t mean you can’t make it easier for yourself. Taking a top-down approach from sectors, technicals, and sentiment can narrow the field down. And don’t be afraid to let tools—like screeners or the one we used in this piece, the Chaikin Stock Discover Engine—do the work for you.

Chaikin Analytics is a sponsored partner with Benzinga. This article was written in conjunction with Chaikin Analytics, and may have been subject to their approval.

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