Here are 5 tips for selecting high-quality shares on NZX

Summary

  • An investor must look at several aspects when he decides on which stocks to choose.
  • Investors should know the purpose of their investment, risk willingness and have a strategy ready before choosing any stock.
  • They must remain updated with all market news, do qualitative assessments and must not panic buy/sell stocks.

The most popular approach to gain exposure to the NZX is to invest in shares listed on the exchange. You must choose what to invest in, and after you have done so, you will have an equity ownership in the firm as well as exposure to the index.

The NZX Market is the main stock exchange in New Zealand that includes over 200 firms, including many of NZ’s oldest and most well-known corporations as well as a few from other countries. These businesses constitute the backbone of both NZX and NZ economy.

ALSO READ: Why to set these 10 goals when investing in NZX stocks

When you are beginning to invest in a stock, first thing you should look for is the pattern of earnings growth of the company. You must next look for debt to equity ratio and P/E ratio to assess the company’s financial wellbeing. You must also know if a company has very high dividend yield, that can imply that the company is not investing enough in itself.

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These are some of the basics of investing that you must know. Now when you have the basic knowledge of choosing a stock and may have some technical knowledge too, you are all ready to invest! But wait! You have a lot of stocks to pick from.

How to choose?

Going through every stock is a tedious task, and this for sure is not the way! If you are new to the NZX market, you need not worry. Here are 5 tips to assist you in overcoming the problems in choosing stocks that is faced in an uncertain environment.

Best Practices for the new investors to pick quality stocks on the New Zealand Stock Exchange

  1. Know the Purpose and Goal of Investing

The first and the foremost step in investing is to know what your goal of investing is. Is it keeping aside your income, or you want to benefit from capital appreciation or you some different criteria?

Investors with lower risk tolerance usually look for capital preservation and tend to invest in stable companies, more likely the blue-chip stocks. On the other hand, Investors with the purpose of capital appreciation will focus more on different ranges of market capitalization and should target companies at different phases of life cycles.

Don’t forget to keep in mind the aspect of diversification. You may take up different strategies or a combination of two and try picking up stocks.

ALSO READ: The ABC of stock market investments for a beginner

  1. Be an Informed Investor

Keep your eyes and mind open and update yourself with the current market happenings and news. Try to read the newspapers with business information or engage yourself in online blogs in some passive research. 

Kalkine Media is one such source. Sometimes news articles and blogs become the foundation of investing. For instance, latest market information such as mergers and acquisitions or another significant event which are analyzed from multiple perspectives by different investment professionals can be insightful and hence, can justify the addition of the specific stock in your portfolio.

Once you are satisfied with the specific information from different sources, you can start your own qualitative search using the company’s presentation and reports. The next step comes in where you must pick up your stock rather the potential choices.

You may take help of the stock screener, plugin the criteria and continue your stock analysis. Make sure you analyze both sides of the argument and keep in mind the advantages and disadvantages each strategy has to offer.

While taking help from a financial advisor can be time consuming, the benefits overweigh the time constraints. Deep understanding and market experience can help you navigate through uncertain times.

DO READ: What NZX-listed companies should one consider investing in? How much does one require to invest to make NZ$1,000 a month?

  1. Company’s Presentations and Reports

When you have shortlisted the potential stocks that you might want to invest in, turn your attention towards the company’s presentation. You will get an idea about their business models, growth opportunities, future guidance, and general overview of the company.

A decent understanding of the business will further refine your search and will help your in-depth scrutiny of the company. You can also compare the performance of the company with its peer groups and check if it has any potential to outperform its competitors.

  1. Qualitative Analysis

First-hand knowledge and data of the company’s profitability and debt profile is a must. Generally, the lower the debt-to-equity ratio compared with the industry average, the less risky it is.

Another essential metrics is to check if the stock is not very expensive to buy, check its 52-weeks’ trading levels, valuation multiples like price to earnings multiple, and EV/EBITDA multiple, among others.

Based on this information, try to formulate a long term view of the market. See how the management of the company has performed all these years and try investing in stocks, the valuation of which is not very expensive.

DO READ: Why are these 5 New Zealand Exchange stocks in the limelight?

  1. Keep your Emotions in Control

Keep a check on your anxiety levels and do not engage panic buying or selling. Trading based on rumours spread or deciding basis herd mentality can result in more losses than you have gained.

Check the proper news and developments and if there is any chance that it is false, let go of the opportunity and keep an eye on the stock. One thing you can look here is to check if what the promotor is up to. Over time if the holdings have increased, that means they are confident in the company.

ALSO READ: Which are best stocks on the NZX? How to select them?

Bottom Line: At the end of this research, you may be left with fewer prospects and will be able to decide which industry fits your criteria. This research will help you save from a bad investment decision and will keep your say in the aspect of picking up the right stocks.

To re-iterate the process, focus on your budget and the way market is trading. Keep yourself updated with the latest business news and find standard parameters which you think might help you make decisions in choosing a stock.

Do the qualitative assessment and check how the company has performed over the years. Also, do not panic buy or sell and make informed decisions.

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