Finding a Great Stock Pick in Four Steps

Everybody's looking for it. Like the gold rush from long ago, the modern day gold rush just might be the great stock pick that will allow you to quit your job, send your child to college, or simply take the vacation that you have always dreamed about. Is it possible to find it or is it something that only the professionals are able to tackle? Let's take a look at four quick steps to take to find the next great stock pick.

A quick note: Although these steps work well for all investors, day traders and other very short term investors will not use the same four steps.

First, look at your portfolio and decide which sector that stock will come from. Remember that diversification is the key so having stocks from different areas of the economy is the key to success. Total the amount of cash you have in your portfolio and then figure out how much of that money is in each sector. You should try to keep it relatively balanced. If you have 5 stocks, 20% of your money should be in each sector.

Second, find the best of breed stock in that sector. In the retail sector, it might be Walmart. In technology, Apple, and in financials, JP Morgan. By the time you read this article, these may not be best of breed. I only use these as examples but if you are even the most part time student of the market, you probably have a good idea. If not, read the financial news websites or ask experts. If you have an online broker, use their research tools.

Third, take a look at their chart. If they are at the top of their 52 week high, they probably aren't the best choice for a long term hold. A great stock pick will have plenty of upside when you buy it. Along with this, you want to look at the P/E Ratio. If their P/E is lower than companies that do similar things, that is a good choice.

Fourth, look at the balance sheet. Lots of cash and very little debt is what you want. Leverage (debt) is the enemy to growth. If their balance sheet looks like a balance sheet you would be proud to have for your home finances along meeting the other three criteria above, you probably have a great stock pick staring you in the face.

Are you tired of watching others make money in the stock market while your portfolio remains lukewarm? Click here to find out how to put your portfolio in to high gear and make big money.