My Exact Process for Picking Stocks

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I get this question all the time:

“How do you pick stocks?”

My answer up until now has always been:

“You have to understand fundamental analysis.”

But now, for the first time, I'm going to walk you through my exact process for how I do it.

Let's dive in...

The goal is to find a company whose stock price is higher or lower than what the company is actually worth.

And to do that, you need to understand fundamental analysis.

Let's start there...

Don't let the big words scare you. All fundamental analysis is, is an investment strategy that measures a company’s intrinsic value (meaning it's true worth as an asset).

There are 2 main types of fundamental analysis:

• Quantitative - Numbers based, financials

• Qualitative - Intangibles, things not easily measured

Okay, that's a brief overview, let's get into what I look for in each of these categories...

𝗤𝘂𝗮𝗻𝘁𝗶𝘁𝗮𝘁𝗶𝘃𝗲 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀:

This is where I look at a company’s financial statements:

• Balance sheet

• Income statement

• Cash flow statement

For the balance sheet, I'm looking at primarily three things:

1. Healthy Debt to Equity Ratio (less than 2)

2. Healthy Quick Ratio (1 or higher)

3. Healthy Current Ratio (1 or higher)

For the income statement, I'm looking at revenue, gains, expenses, and losses.

I'm making sure gross margin, profit margin, and operating are all within a healthy range comparative to the size of the company.

This varies, so really I'm making sure the company doesn't have any ongoing crippling losses or expenses.

For the cash flow statement, I'm looking at 3 main things:

1. Operating cash flow / net sales

(The higher the better)

2. Free cash flow

(Looking for a positive number)

3. Comprehensive free cash flow coverage

( Again, the higher the better here)

That's it for the numbers based analysis, let's get into the things you can't measure as easily...

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If you’re looking to do more due diligence, I recommend visiting their site through the link below:

𝗤𝘂𝗮𝗹𝗶𝘁𝗮𝘁𝗶𝘃𝗲 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀:

• Management

• Growth opportunities

• Competitive advantage

• Customer base

• Innovation

Let's walk through what I look for in each:

𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁:

Management will make or break a company.

I'm looking directly at the history and reputation of the current manager(s) and how they've operated in the past...

• Do they take high risks?

• Have they botched growth?

• Do they hire expensive replacements?

𝗚𝗿𝗼𝘄𝘁𝗵 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝗶𝗲𝘀:

This is where I look at the industry the company is in and the type of products/services the company offers.

Is it growing or dying?

I look for things like:

• New markets

• New locations

• Customer acquisition

A company with a bright future will often show it in its stock price.

𝗖𝗼𝗺𝗽𝗲𝘁𝗶𝘁𝗶𝘃𝗲 𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲:

Does the company have:

• High barriers to entry?

• Patents and IP?

• Strong brands?

A business with a sustainable advantage over others is most likely to profit. Spend a good amount of time analyzing this.

𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝗯𝗮𝘀𝗲:

Companies with a diversified customer base are usually more stable than companies with concentrated customer bases.

Just like diversified investments are good for your portfolio, diversified customers are good for companies... so that's what I look for.

𝗜𝗻𝗻𝗼𝘃𝗮𝘁𝗶𝗼𝗻:

Is the company improving alongside technology?

Or is technology disrupting the industry?

Companies that leverage new tech are versatile and adaptive.

This makes for a great long term investment.

And there you have it! A full breakdown of my exact process for picking stocks. Of course, you can always go deeper and I plan to in future content.

If you found value in this post, follow me @WOLF_Financial for more and smash that repost button!

And there you have it!

A full breakdown of my exact process for picking stocks. Of course, you can always go deeper and I plan to in future content.

Be sure to follow me @WOLF_Financial on X for more.

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