How to Spot a Future Blue chip Stock?
Nothing to worry, below 3 points and some home work would help you to easily spot the future blue chip stock to invest on.
Focus on Mad-cap Stocks
Madcaps are the future blue chips. Even few small caps also do but focusing on mid cap segment is the best idea.
As a first step, focus on madcap companies that are having enough potential to grow in future. Here are some areas investors must focus to identify potential mid caps to list and work on.
Business, Business, Business
Business is everything. Sustainability of a company in the market totally depends on its business. Checkout the durable advantage of the product as well as service and what is the impact to the market once if the product or service is not available.
Look whether the company has any immediate competitor in the market. If so, what is impact of their product in the market against the selected company’s product. Which is better and preferable for public if see both products in a same place?
As a best tip, identify and focus the mid cap companies which has monopolistic position in the market with their product and services.
Operating history of the company matters. Select the mid cap companies with at least 10 years operating history in the market with the products which still in superior position compare with competitors, if any.
Companies should have a clean operating history and trust from public on its brands.
As a bonus tip, if we hear about paste, immediately say Colgate. Or hear about fried chicken, will think about KFC. This is the brand value of the company in the mind of public. Look for such companies with generated brand value to their products among public.
Focus on Management
Management should be rational and investor friendly. They should complete all the promises giving to the shareholders every year.
Look for the company with ethical management. Management should have enough ideas and should act fast to bring the company in the top position during any changing market conditions.
Performance Matters
Continuous positive performance of the company each year, is a good signal for investors. Companies with high profit margin and high turnover must be considered.
Consistent growth of RoE (Return of Equity) for at lease last 10 years, shows the company is a best performer in its segment of business.
Keep an eye on the debt burden of the company. Good companies have no debt or debt equal or less than one year net profit, only to be considered.
Dividend payout history of the company has important role to take investment decision. Company should be a consistent dividend payer for at least last 10 years or from its existence.
Conclusion:
Above are the common, simple factors an investor keep an eye on mid cap companies to analyse and decide to whether it is a perfect fit to invest. Good products that have popularity between public, capable management, consistent growth in profit and earnings are the major 3 focused areas when selecting a company to invest.
In my famous article posted earlier, I have pointed all these parameters one by one. Read “How to select a best stock to invest” to get more better idea on the focused areas and parameters.
Keep in the above three major areas in mind, you can easily find best companies in the market. Remember, every stock investing activity required to spend time to do the necessary homework.
Do you think I missed anything in this post on how to spot a future blue-chip stock with huge growth prospects? If so, please comment.