Joy Wallet is advertiser-supported: we may earn compensation from the products and offers mentioned in this article. However, any expressed opinions are our own and aren't influenced by compensation. To read our full disclosure, click here.
Choosing the best stock to buy or sell, and determining when that moment is, can be intimidating even for those who do understand it. Basing decisions entirely on past performance doesn’t always work out well. And for beginners, stocks may make your head spin. Or it may bring back scary memories from your college investment research class. (No??? Just me??)
But the ability to research stocks has become available to anyone with a smartphone. You now have access to many of the same tools used by top investors. And it is well worth your time to check these out, as they make stock picking far simpler and less scary than it seemed in your college courses.
In this article
How to research a stock
Researching a stock is similar to buying other high-cost items like a car or house—many factors have to be considered and thoroughly reviewed. Some of these are simple preferences, others are market history. And some are more complicated, like related economic factors, comparing competitors, and analyzing market strengths and weaknesses. This is often accomplished by reviewing a company’s financials, cash flow, earnings ratio, and similar reports.
Types of stock research
It shouldn’t be ignored that stock research can be a complex and lengthy process, but when you use the right steps and tools, this process becomes simpler and faster.
There are two basic methods of stock research: fundamental analysis and technical analysis. Fundamental analysis is most often used as a long-term investing strategy, and technical analysis is used more often as a short-term investing strategy.
Even though they are different — even seemingly contradictory — when used together, these two approaches can produce effective results.
Fundamental analysis
Fundamental analysis uses the theory that a stock price doesn’t always reflect the true, intrinsic value of the business. For this reason, an investor needs to dig further into the business’s underlying data to determine the true value of its shares. This is done using valuation metrics and financial reports.
The first step to fundamental analysis is gathering the needed forms and reviewing the company’s financial statements. This step is known as quantitative research. There are two documents that are especially helpful, Form 10-K and Form 10-Q. Publicly traded companies are required to file these forms with the U.S. Securities and Exchange Commission, and they are accessible to the public.
Form 10-K is an annual report that includes important financial statements. You will be able to look over a company’s balance sheet, income statement, and cash flow. Form 10-Q is a quarterly report also filed with the SEC that gives an update on the company’s operations and financial results.
The next step is to become familiar with the data that is most important to you. These forms contain a lot of information, and it is easy to be overwhelmed. There are several important items to look for, including:
- Revenue - The amount of money that entered a company’s accounts during a specified period.
- Net income - The amount of money a company earned during a specified period after subtracting all operating expenses, taxes, and depreciation.
- Earnings per share - The value of each individual share, totaled by dividing earnings by the number of shares a company has available to trade.
- P/E ratio (price-to-earnings ratio) - The number you come to by dividing a company’s current stock price by its earnings per share.
- ROE (return on equity) - How much profit a company creates from each invested dollar (given as a percentage).
- ROA (return on assets) - Tthe percentage of a company’s profits generated by its assets.
After this detailed research, you can take a step back and ask yourself some of the more “common sense” questions. How does this company make its money? How do you feel about this company’s competitive advantage in the market? Do you feel like the leadership is strong? What are some potential problems this company could face? This is qualitative research.
The answers to these questions, plus the detailed financial information you gathered, should give you a well-rounded view of the business’s long-term health and help with your investment decisions. But if you need to research the business even more, technical analysis is a good way to continue your evaluation.
Related: Motley Fool Review
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Technical analysis
Technical analysis uses the theory that a stock’s price is based on all available data and changes based on societal trends, economic trends, government influence, and other similar factors. For this reason, stock analysis using price history can help you predict its future stock price. Finding patterns in valuation charts and indications in stock market graphs are ways of using technical analysis.
Technical analysis focuses on historical trends and market patterns to determine future stock prices. It is typically used for short-term trading, as the purpose is to find when a stock price will rise or drop based on how stocks have performed in the past. This type of analysis typically looks beyond day-to-day news and data reports. Instead, it uses the market itself as a way to predict stock behavior.
The first step is to find past trading information. Look for patterns and indicators in the stocks to determine their strength, and when they will increase or decrease in price.
When using technical analysis, remember these three core principles:
- Market action discounts everything.
- Prices move in trends.
- History repeats itself.
This form of analysis can become complex and subjective, which is why it is sometimes referred to more as an art than a science. But when used correctly, it can be effective and beneficial. And when used in conjunction with fundamental analysis, it can be a helpful method of reiterating a stock’s strength or flagging a stock’s weakness.
Companies to help with stock research
There are numerous websites and apps that simplify your stock research. They do most of the work for you, such as gathering the necessary data and even analyzing it, then giving you recommendations based on this data.
Morningstar
Best for intermediate and active investors, this service analyzes over 4,000 funds, including ETFs, bonds, mutual funds, and individual stocks. You can use their stock screener to review thousands of different accounts that fit your specifications, such as filtering for risk tolerance or dividend.
Using a star rating system, Morningstar guides you without doing the decision-making for you. These ratings are created with mathematical measurements instead of human opinions. But if you’d like to have a human opinion as well, they have insights and picks from 150 independent analysts.
In addition, you will have access to investment tracking for your brokerage account. And their Portfolio X-Ray tool uses multiple ways to analyze and assess your portfolio’s strengths and weaknesses.
The Basic plan is free, and Premium costs $249 per year.
Read a full review on Morningstar.
Motley Fool Stock Advisor
This stock-picking service has a long track record of outperforming the market, and they are proud of it. The Motley Fool offers services best for those who want a moderate level of trading, as they include educational services in addition to stock picks and investment advice.
One of their well-known features is their two monthly stock recommendations from their founders, Tom and David. The founders also share their “Best Buys” list that can help guide your stock market decision-making.
The subscription costs $199 per year or $99 for the first year for new members.
Stock Rover
Stock Rover works with your current brokerage account, strengthening it through analysis and potential buying opportunities. They offer stock ratings, news, in-depth research reports for over 7,000 stocks, and investment screening.
This service is best for advanced investors. Their in-depth research is extensive and detailed, but they don’t offer a lot of educational resources to go along with it.
Stock Rover offers a free option, and their paid plans range from $7.99 per month for Essentials to $27.99 for Premium Plus. In addition, you can purchase Research Reports, which vary in price from $49.99 per year to $99.99 per year, depending on your plan.
Zacks
Zacks excels with active traders. The accessibility of a human broker, foreign trades, and options trades makes this site a good pick for those who want to be busy in the stock market.
Their lack of cryptocurrencies is a drawback, but they offer a top-end trading platform for other stocks. They also do not have a subscription fee. Instead, they charge a transaction fee.
Read a full review on Zacks.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Costs to research stock
Trading Service | Subscription Cost | Transaction Fee |
Morningstar | $249/year | $0 |
Motley Fool Stock Advisor | $199/year | $0 |
Stock Rover | $7.99-$27.99/month | $0 |
Zacks | $0 | $.01/share |
Pros/Cons
Pros
- When done alongside other methods of investing, it creates more diversification, in turn lowering overall risk.
- Increases the speed at which you can enter or exit a certain market, making it easier to time investments.
- Avoids management fees that come along with most actively managed funds.
- Gives you the ability to beat the market rather than simply follow the market, which is what passive investing does.
Cons
- Buying large amounts of individual stocks will increase stock-specific risk, meaning you are more vulnerable to the movements of that individual stock rather than the overall market.
- It is time-consuming, requiring continual research and monitoring.
- It can be stressful, even if done well—it includes continual uncertainty and is not for all personality types.
The bottom line
The path to becoming a confident stock investor is open to you. You only have to find the right tool and download the app. While this path isn’t for everyone, it is an exciting and potentially beneficial endeavor for most people, and it is more accessible than it has ever been.
When you find the tool that fits your needs and move forward with stock investing, the term investment research may no longer bring back nightmares of the college course you nearly failed. Instead, it will bring visions of earning money by buying into exciting businesses and putting your stake in the investment world.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Joy Wallet is an independent publisher and comparison service, not an investment advisor, financial advisor, loan broker, insurance producer, or insurance broker. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. Joy Wallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. We encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Featured estimates are based on past market performance, and past performance is not a guarantee of future performance.
Our site doesn’t feature every company or financial product available on the market. We are compensated by our partners, which may influence which products we review and write about (and where those products appear on our site), but it in no way affects our recommendations or advice. Our editorials are grounded on independent research. Our partners cannot pay us to guarantee favorable reviews of their products or services.
We value your privacy. We work with trusted partners to provide relevant advertising based on information about your use of Joy Wallet’s and third-party websites and applications. This includes, but is not limited to, sharing information about your web browsing activities with Meta (Facebook) and Google. All of the web browsing information that is shared is anonymized. To learn more, click on our Privacy Policy link.
Images appearing across JoyWallet are courtesy of shutterstock.com.
Writer
A veteran wordsmith and research nerd, Brittany Wren spent a decade working in higher education where she helped people overcome challenges to chart a path forward. These days, she writes about personal finance, careers, parenting and education. Her content has been published by a wide variety of brands including T-Mobile, Intuit, LifeLock, Reliant Fund Administration and CURO Financial Technologies Corp.
Share this article
