Investing in the stock market has provided generations of people with a more attractive alternative to keeping extra funds in a savings account, buying certificates of deposit (CDs) or earning interest from holding fixed-income securities.
Stock market returns have historically increased over time considerably beyond the rate of inflation, although some notable exceptions have occurred in recent memory like the 1987 Black Monday stock market crash, the 2008 financial crisis and the 2020 coronavirus pandemic, so profits are by no means guaranteed.
Knowledge is power in the world of trading and investing. If you educate yourself about the markets and stocks you plan on operating in and stay well-informed, you will probably make more profitable transactions.
Above all, one of the most important things to remember when trading speculatively is to refrain from using anything other than risk capital, which is money you can easily afford to lose. Investors also generally aim to maximize returns while preserving the value of their initially invested capital, so taking excessive risks should generally be avoided when investing in the stock market.
Successful investors and traders have typically developed excellent research skills they use to build their accounts and portfolios. Keep reading to find out which analysis techniques work best to generate trading and investment ideas and how to turn them into profits.
How to Research Stocks
Stock research has many facets. Depending on your trading or investment style, you might choose to operate based on technical analysis or fundamental analysis. You can also use a combination of both market analysis methods, which is how most successful professionals research stocks.
Technical analysis is largely based on market observables like volume, open interest and the price action that responds to the forces of supply and demand. Technical analysts typically spend time interpreting stock charts and stock indicators to find misvalued stocks or to time their trades in stocks that have recently shown a notable price move.
In contrast, fundamental analysis focuses on factors like a company’s earnings in relation to its stock price or price-to-earnings (P/E) ratio compared to other companies in its sector. Other key fundamental observables for a company that can be analyzed include its revenue, net income and return on equity.
In addition to these traditional market analysis methods, stock traders and investors use a number of modern tools to select promising stocks. These tools include online stock screeners, industry research websites like Benzinga and professional online newsletters published by successful traders and investors.
The following research methods have traditionally been used by traders and investors to achieve excellent results. The more you know about your potential investments, the more confident you’ll be pulling the trigger on the stocks you’ve researched.
Review the Company’s History
A company’s history gives you a good idea of its future potential and the prospects of its stock. The main reason companies issue stock and sell shares to the public is to raise capital to expand. This allows the public to participate in the company’s success once its earnings increase.
The company’s history can be viewed technically by reviewing stock price charts and fundamentally by researching the 10-K and 10-Q forms that all publicly listed companies must file with the Securities and Exchange Commission (SEC).
Form 10-K is an annual report that includes the company’s balance sheet and other key financial data. Form 10-Q is a quarterly report that gives researchers updated information on the company’s activities, operations and financial results for the quarter.
These reports often contain an overwhelming amount of information, so it’s best to select several key items to research such as:
- Net income: Generally listed on the last page of the company’s income statement, net income represents a company’s bottom line earnings number. It consists of the total amount of money the company made after expenses, depreciation and taxes.
- Revenue: Sometimes referred to as the top line because it generally appears at the top of the company’s income statement, revenue is often divided into operating revenue that comes from a company’s general business and nonoperating revenue that typically includes one-off business activities.
- Earnings per share (EPS): EPS is calculated by dividing the earnings amount by the number of shares outstanding. This number represents the amount of money the company made on a per-share basis.
- Return on equity (ROE): This number indicates the return in percentage terms of the company’s profit made off the money shareholders invested because “equity” means shareholder equity in this context.
- Return on assets (ROA): This figure shows the percentage of profits generated by the dollar amount of the company’s assets.
- Stock price-to-earnings ratio (P/E ratio): This measures the company’s current share price relative to its EPS. For example, if a company’s stock trades at $30 per share and earns $3 per year, then its P/E ratio would be 10, meaning the stock trades at 10 times its yearly earnings. This metric gives investors a better idea of a company’s valuation and whether the company may be over or undervalued.
You can review a company’s history along with other financial data on Benzinga’s website, and you can do even more in-depth research on individual stocks using Benzinga Pro. Benzinga provides investors and traders important company information, stock charts and advanced stock indicators. An example stock analysis page appears in the image below.
Check Analyst Ratings
Another useful tool for fundamental stock research consists of the analyst consensus on the stocks you’re interested in. Benzinga provides an excellent resource for this valuable information by giving you the most important stock analyst metrics. These include:
- Upgrades, downgrades and initiations: You can see which companies’ stocks have been upgraded or downgraded and those where analysis has been initiated by major stock analysts.
- Upside/downside: This figure shows, in percentage terms, the amount analysts expect the stock to rise or fall.
- Analyst firm: Indicates which major market analyst, bank or brokerage has made the prediction for a stock’s future.
- Price target change: Shows the original price forecast and the change from the original forecast with a red range indicating a downgrade in the analyst’s price target and a green range indicating an upgrade. If no change is expected, the number appears in black.
- Rating change: Indicates whether the analyst has maintained, downgraded or upgraded their previous rating.
- Previous/current rating: Shows whether the analyst considers the stock a buy or sell, a strong buy or sell or market neutral. Also indicates if the stock is a hold, if it is likely to outperform or underperform its industrial sector and whether they recommend over, under or equal weighting the stock relative to its sector.
Review Stock Charts
Performing technical analysis on stock charts is one of the most accurate and objective market analysis methods used as a form of stock research by many successful traders and investors. Benzinga offers users the most sophisticated charts provided by TradingView. This lets you access advanced charts you can easily customize to fit your specific stock research needs.
Read the News
The most important news for individual stocks are quarterly and yearly earnings releases, the introduction of new products and the issue of new stock in the company. Other pertinent news involves insider transactions, which consist of the purchase and sale of a company’s stock by company officers and major shareholders.
Macroeconomic news, news covering the general market and geopolitical events also influence stock prices. Therefore, keeping a keen eye on the news helps traders and investors find opportunities or indicate when to initiate or liquidate existing positions.
In addition to providing some of the best charts available on the internet, Benzinga offers the latest news on just about every U.S. and foreign listed stock. Stocks typically react quickly to financial news, whether positively or negatively, so keeping an eye on the news of stocks you hold or plan to buy makes sense.
The speed with which you get this news also determines whether you can take advantage of it before the market moves to fully discount the new information, and Benzinga boasts that it offers “the fastest newsfeed in the game.”
Check Current Indicators
Becoming more familiar with technical and fundamental indicators can only improve investors' and traders' familiarity with the stock researched and should eventually lead to making more profitable transactions. You can review both fundamental and technical indicators at the Benzinga or Benzinga Pro websites.
Key fundamental indicators include economic data releases like gross domestic product (GDP) that provide a sense of the strength of the overall economy a company operates in. They can also include important company metrics for a particular stock, like its EPS, its dividend payout and consistency, its debt ratio and its P/E ratio. Such indicators give investors a look into a company’s profitability and how it deals with its responsibilities to shareholders.
Popular technical indicators can include the Relative Strength Index (RSI) and moving average convergence divergence (MACD), which give investors an idea of a company’s share price is fairly valued, undervalued or overvalued.
Consider the Value of the Investment
You can take into account a company’s business, business model, management and the measures it takes to increase profits to determine its fair value. Your detailed research may indicate that a company’s value may not be accurately expressed in its stock price, and so it may look undervalued or overvalued as a result. This suggests an opportunity for profit may exist.
As you research stocks, you’ll become aware of the intrinsic and nonintrinsic value of each company’s stock you review closely. According to business magnate Warren Buffet, one of the world’s most successful investors, only stocks showing solid fundamentals, strong earnings and potential for continued earnings growth should be considered for long-term investments.
On the other hand, while companies that show little intrinsic value may be good for short-term speculative trading profits, they typically do not make the best investment options.
How Much Should You Research an Investment?
The amount of research you conduct before taking a position in a stock depends in large part on how comfortable and confident you feel toward the potential investment. Successful investors and traders could be likened to a master detective who collects all the important facts about a company before making a decision to invest or trade in its stock.
Keep in mind that even the best research does not guarantee profitable results. Research just increases the likelihood of you experiencing a satisfyingly profitable transaction in the stock market.
Should You Research Stocks Before Selling?
Research certainly doesn’t stop after you’ve invested in a stock or other asset. Your research should also include a price level at which you would like to liquidate your investment.
Also, stock market or other financial news may adversely affect your trade or investment. This means you should definitely do some research before selling any stocks you hold.
Best Stock Research Platforms
- securely through Stock Rover's websiteBest For:Professional InvestorsRating:
Benzinga vs. Benzinga Pro
Together, Benzinga and Benzinga Pro offer some of the most complete datasets on the financial markets and their various components, providing extensive research and market analysis resources for traders and investors at all levels.
Benzinga Pro builds on Benzinga’s more basic offerings by also giving users access to an actionable real-time news feed and in-depth technical and fundamental analysis tools for stocks and a slew of other assets and derivative products.
Frequently Asked Questions
What is the best way to research a stock?
It depends entirely on each individual trader and investor. Many successful traders combine fundamental and technical analysis, which seems to be the most complete way to research a stock, although some traders prefer the objectivity and relative simplicity offered by using technical analysis alone to scan markets and time transactions.
What is the best site to research stocks?
The Benzinga website and its more comprehensive Benzinga Pro offerings have some of the most complete and timely resources for researching stocks you can find online.
How do I find information about stocks?
To find information about stocks, there are several reliable sources you can use. One option is to visit financial news websites such as Benzinga, Bloomberg, CNBC, or Yahoo Finance, where you can find up-to-date information on stocks, including their performance, news, and analysis.
Additionally, you can utilize online brokerage platforms like Interactive Brokers, Webull, or Robinhood, which provide comprehensive information on stocks, including real-time quotes, charts, company profiles, and financial reports.