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How Successful Investors Know What Stocks to Buy — Simple Strategies

Ruchi Gupta - Author
By

Aug. 15 2022, Published 8:41 a.m. ET

Investors often weigh a variety of factors when selecting the best stocks to buy. As a result, some may favor EV stocks and cannabis stocks, while others may be drawn to natural gas stocks and crypto stocks. How do you know what stocks to buy now?

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For many people, stocks are among the most dependable investment products. Many retirement savings accounts and education savings funds are largely stock-based. While stock prices often fluctuate, history has shown that stock prices usually rise over time. As a result, stocks are a popular investment product for long-term portfolios.

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How do you know what stocks to buy?

There are thousands of stocks representing a diverse range of industries for investors to choose from. While the broad selection may mean that there's a stock for everyone, the options can be overwhelming if you’re trying to identify the best stock to buy. As a result, successful investors apply various strategies to choose the right stocks to buy.

Your investing goals matter when choosing stocks.

A major factor that drives investment decisions is the investing goal. If you're investing for the income, you may find stocks with dividends ideal for their portfolio. You may reinvest the dividends to grow your portfolio or withdraw the money to pay your bills. If you’re investing for dividends, companies with solid financials and a track record of paying dividends consistently may be your best bet.

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If you're investing for a retirement or college fund, growth stocks may be attractive. These are stocks with the potential to double, triple, or quadruple in a few years. Many investors look for growth stocks in industries such as electric vehicles, lithium refinery, marijuana, and crypto.

Your risk tolerance can determine what stocks you buy.

Another factor that may determine what stocks to buy is your risk appetite. For example, penny stocks tend to appeal to investors with a high risk tolerance. These stocks are often volatile and can more than double their price in a single day, meaning you could make a huge profit in a short period. But your portfolio could be wiped out in an instant if the penny stocks market moves against you.

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Many investors with a low risk tolerance tend to be drawn to stocks in sectors such as consumer staples, healthcare, and utilities during a recession. Whether the economy is expanding or shrinking, people still need to eat, buy medicine, and light their homes. As a result, many investors think stocks in these sectors are recession-proof.

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Why is a stock a "strong buy"?

A stock labeled as a “strong buy” is the one that Wall Street analysts expect to significantly outperform the returns of the average market or comparable stocks. These are some of the strong buy stocks now, according to TipRanks data:

  • Marinus (MRNS) – The pharmaceutical company has focused on developing treatments for seizure disorders. The stock’s average target price of $30 suggests a more than 400 percent upside potential.
  • Rigetti Computing (RGTI) – The company builds quantum computer systems. As quantum computers are seen as the future of computing, many investors are piling into quantum computer stocks. RGTI stock’s average target price of $10 implies a 140 percent upside potential.
  • Oportun Financial Corp (OPRT) – The fintech company provides personal loans and a variety of other financial services. It draws customers with affordable installment loans. The stock’s average target price of $18 indicates a 140 percent upside potential.

Finally, stocks with a “strong buy” rating may help you select what stocks to buy when you have many options. However, regardless of Wall Street’s predictions on a stock, nothing is ever guaranteed in the market. Your investing goal will be an important guide when selecting the best stocks to buy.

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