Pro Tip: How to Pick a Stock in Under 8 Minutes

A couple words of caution right off the bat. First, this is a pro tip designed for those that study the markets so intimately they truly have no life. In other words, they are aware of the underlying sentiment across different sectors. Second, I am not an advocate of investing in a company after seven minutes of research, too many hours and missed family events training through the years to flip the switch so suddenly. What I am saying is that for time-starved pros it could be done successfully with a quick first glance at a chart and the search for buzzwords in the latest financial filing. Agree or disagree with me on Twitter (@BrianSozzi). Rule #1: Know the Market's Mood Does the market currently favor defensive stocks? Global multinationals that mail dividend checks every quarter? Domestic cyclicals? You have to know this to form a quick base opinion. If the stock is defensive, for example, and is lagging a bunch of peer comparables it's a name to avoid for this exercise. Rule #2: Find the Buzzwords Once having determined if your company in question is in favor with the mood of the market, or at the very least outperforming its peer group, it's a hurried rush to the recent 10-Q for a buzzword search. Here are a couple items to seek: A “mix shift” that is favorably impacting gross profit margins while net sales are still growing. A “mix shift” is usually structural (new product or service is wowing customers because it's awesome, or a mix of awesome plus effective marketing), and if the company is experiencing this with no detriment to sales, it's a recipe for success. “Continued operational productivity” on the expense line, not only fueled by “leverage” on strong sales, but also to a focus by management on “restructuring initiatives” that are removing costs from the business to drive more leverage in the future. These exercises should take around five to six minutes. The next minute and a half is devoted to a “valuation sanity check.” If the stock is outperforming its peer comparables, the market is trying to tell you that it's willing to afford the company a richer valuation due to the high probability of those wonderful things found in the 10-Q continuing. As of the moment, the market has not suggested the fundamental positives are “priced in”, so roll the dice. Go forth and conquer, pro.