Investment in the stock market is both thrilling and intimidating. The temptation to get good returns on investment comes with the most difficult task of selecting the best stocks for investment. The success in the stock market largely depends on which stocks you invest. In this article, I will discuss five filters to get best stocks for investment.
You must have heard your friends or relatives saying that they have earned huge returns on an ABC stock, but that does not mean you will also get good returns on investment.
The most important thing that matters is the time when they entered into the trade.
Suppose your friend invested Rs 1 lacs in ABC stock when it was at Rs 250 five months ago. That means he owns 400 shares. Today, when the market is bullish, the price of ABC rises to Rs 350. His investment turns out to be Rs 1,40,000, giving him a 40% return on investment.
Certain stocks touch the all-time high and never come back to the same level again. If you would have invested at a high price believing that the share price would increase further, in that case, your hard-earned money will go in vain.
Now come to the five filters that will help you to get the best stocks for investment.
Filter 1: Market capital should be more than 7000 crores
The market capital of the company should be more than Rs 7000 crores.
This means any company that has a market capital of less than Rs 7000 crores should be rejected. No matter how much the stock or company seems to be luring, you should focus on finding quality stocks.
The formula to calculate market capital is:
Market Capital = current market price x number of shares
Filter 2: Sales growth should be more than 10%
The 10-year average sales growth should be more than 10%.
If any of the stocks falls below the specified sales growth rate then it will be rejected.
Filter 3: ROCE should be more than 15%
The 10-year ROCE should be more than 15%.
If any of the stocks falls below the specified ROCE value, then it will be rejected.
Filter 4: Promoter holding should be more than 33%
Promoter holding means the investors have the majority of shares. The total promoter holding of the company should be more than 33%.
If the promoter holding of any of the companies is less than 33%, then the stock will be rejected.
Filter 5: Return on share price should be more than 17%
The 10-year average share price growth should be more than 17%.
If the 10-year average share price growth of any of the stocks is less than the specified value, then it will be rejected.
How to apply the filters?
Now, you must be wondering how to apply all these filters because it is not easy to check the above-specified details of all the stocks one by one.
The solution to your problem is go to screener.in
- Create a free account by signing up.
- Once you create a free account, go to “Screens”
- Then click “Create new screen”
- In Create a search query, you will write down all the filter statements
Market Capitalization > 7000 AND
Sales growth 10year > 10% AND
Average return on capital employed 10years > 15% AND
Promoter holding >33% AND
Return over 10years > 17%
- Next, you will click “Run this query”
After this, you will have a list of all the favorable stocks in which you can invest.
To conclude, investment is a big decision because it involves money and you must do thorough research before investing in any company or stock. The article discusses the five filters to get best stocks for investment.
Disclaimer: If you want to invest in the stock market, you should consult your financial advisor before making a buying decision. You should assess the risk and study the company details.
Frequently asked questions
Can I invest in stocks that are not listed after applying the filters?
Yes, you can invest in the stocks that you do not get after applying the filters.
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