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# BUSINESS BRIEFS Narrow your focus when picking stocks
- URL: https://www.smdp.com/business-briefs-narrow-your-focus-when-picking-stocks/
- Published: 2006-08-03T15:00:00.000Z
- Updated: 2026-10-23T19:07:47.000Z
- Author: Guest Author
- Tags: Opinion, Santa Monica, #archive-import

*Analysts weigh a handful of issues to fine-tune a portfolio*

*By KIRK G. AGUER*

When you decide to invest in the stock market, how do you refine the huge list of available equities down to just the most promising candidates?

First, you keep in mind something that professional analysts must remember — investing always requires weighing potential risk against potential reward. Analysts use certain criteria in an effort to focus their stock selection process. In broad terms, analysts generally weigh three issues: fundamental business factors, the technical position of the stock and intangible factors that may provide a sense of how reliable a stock may be. You can use these same criteria yourself when fine-tuning your stock picks. ■ Fundamentals. Business fundamentals are the first factor to consider. For example, does the company have a projected earnings growth rate that is substantially better than that of the Standard & Poor’s 500 Index? Is the company first or second in its industry in terms of market share for its products and services? If not, is it gaining market share against its larger competitors? Is the company the lowest-cost operator in its industry? ■ Technical factors. Next come the technical characteristics of the stock. Technical analysts seek clues to a stock’s future performance by charting its historical price and volume action. Questions they ask themselves include: Is the stock in a long-running uptrend? Are there signs that it might be building to a peak from which it is likely to fall? Is the industry sector in or out of favor? Has the stock been displaying above-average relative strength compared to the broad market? Finally, does the stock trade in enough volume to make it relatively easy to buy and sell? ■ Don’t forget the intangibles. Does the stock have the aura of a winner or a loser? For example, does the company have a growth record that can capture the imagination of other investors? Does it seem likely it will attract institutional buyers? Can you live with this stock through the downswings most stocks have from time to time? On a more objective level, is the stock widely followed by Wall Street analysts, or is it followed by only a few firms, possibly making it more vulnerable to an analyst’s downgrade? Finally, you need to consider the stock’s performance history. What were the causes of any large sell offs over the past decade? Were they related to company or industry developments or the consequence of general market weakness? ■ Take valuation into account. Is this stock you’re considering just a trading vehicle, or are there enough positive answers to the previous questions to suggest that it may have the potential for an enduring rise? If your answer is the latter, but the stock’s price/earnings ratio (P/E) seems too high, there’s another factor to consider. The further into the future that you can project a stream of growing earnings, the more likely it may be that the stock could trade at a high P/E ratio for an extended period of time and outperform many issues that look cheaper.

The information given here is for general guidelines only. Many stocks won’t measure up to standards like these, but taking these criteria into account when evaluating a stock may provide the potential for rewarding investments. Consult your financial advisor if you want further guidance. (Kirk G. Aguer is a Santa Monica financial advisor for Morgan Stanley, member SPIC. To reach him, call (310) 319-5220.)

*Originally published in the Santa Monica Daily Press print edition on August 3, 2006.* [Read the original PDF.](https://s3.us-east-1.amazonaws.com/smdp%5Fbackissues/080306.pdf?ref=smdp.com)