How to Pick Individual Stocks

Picking single equities seems almost quaint in these days of mutual fund. Singling out a stock for your portfolio still makes sense, though, if you know how to select smart and you sift carefully through headline deals.

One caveat remains true: “Stay away from them if you can’t afford to lose the money,” said Daniel Mazzola, an advisor with American Portfolios in Massapequa, N.Y., speaking at a recent investing panel.

The panel, Selecting Individual Stocks, was held recently as part of National Financial Advisor Week in New York’s Times Square. This event, which attracted hundreds of onlookers, featured financial advisors giving tips on personal finance, ranging from retirement saving to college funding. The panels also focused on how people can get the most out of advisors. At the event, Jennifer Rufener of Dover, Ohio, won a sweepstakes for a free college education.

Interest in nailing the next big stock flared recently after the record $25 billion initial public offering for Chinese Web behemoth Alibaba, a pick that Mazzola noted has “an Internet name and sounds a little exotic.”

Don’t write checks to your brokerage based solely on chatter. “We call [offerings like Alibaba] ‘cocktail-party stocks,’” said co-panelist Andrew Aran, partner with Regency Wealth Management in Ramsey, N.J. “You get into it and it goes up and you tell your friends. Or you don’t get into it and it goes down and you tell your friends.”

Bargain equities are especially tricky, as moderator and USA Today money columnist John Waggoner said. Investors must know when a cheap stock is “truly a stinker” and how to spot the stock of “rotten companies that are getting slightly less rotten.”

Mazzola and Aran advised putting no money into individual stocks that you can’t afford to lose. “If you have $2,000 to invest, you shouldn’t be buying individual stocks,” Aran said. “If you have $800,000, that’s a different story.”

Among the panelists’ pointers:

  • Look for the historical basics of a good stock: Industry leadership, low leverage and strong cash flow.
  • Dividends remain strong at equities of banks, oil companies and some consumer-goods companies like Phillip Morris.
  • Put a quantifiable floor on your losses to trigger selling, Mazzola recommended, such as a 20% decline.
  • Exchange-traded funds, which are mutual funds that trade like stocks, have a place in everyone’s portfolio.
  • You’ll own the likes of Alibaba anyway if you invest in a large-cap mutual fund of growth stocks.

The outlook does remain good for individual stocks, panelists agreed, at least for now. Aran predicted that the Standard & Poor’s 500 will reach “2,200 to 2,300 before this party’s over.” It now is around 2,000.

Follow AdviceIQ on Twitter at @adviceiq

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.