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#Stocks #Investing
In today's video we are learning how to pick winning stocks and make profitable investments using 5 easy investing metrics to pick our stocks. to begin we need to understand why certain stocks make us money, what stocks we should stay away from -and ask ourselves - how can we increase our chances at making money in the stock market? In this video I will look at 5 stocks that you may very well want own based off of some VERY important metrics and indicators.

Market cap is how much the entire company is worth - in other words how much all their shares combined together equal. So If I own a company and I break up my company into 100,000 shares, and the market decides that each share should trade for $10, then my market capitalization is $1 Million dollars. Similarly, if my friend company only had 10,000 shares outstanding, and their share price was $100 let’s say, then the market cap would also be $1 Million. See now we have 2 companies - one with a $10 share price, and another with a $100 share price yet they are still worth the same amount. I like to think about the market cap as “If you were to buy the entire company, how much would you pay?” This is what you are essentially asking yourself when making an investment in a stock. So now it’s up to you to pick a range of market cap that would fit your risk tolerance.

The price-to-earnings ratio is the ratio for valuing a company. Now there are many ways to value a company to figure out how expensive or inexpensive it it - but the P/E ratio is one of the most popular I would say because its one simple number. Now this is sometimes referred to as the price multiple or the earnings multiple. So when you hear someone saying you are paying a high multiple for a stock, that means it has a high P/E ratio. So, the P/E ratio is measured by taking the companies current share price and dividing it by its earnings per share. So say I own a company and it’s share price is $100, and my earnings per share is $5, then I would have a P/E ratio of 20. Now typically, to find companies that might be a good investment to buy, as in the price you pay is a good value for your money, you want a low P/E ratio relative to the industry or sector standard. A low P/E might mean that a company is undervalued and investors tend to gravitate to lower P/E stocks because this means you are paying less for every dollar of earnings that you receive.

EPS number is an important factor for picking winning stocks. Ok so let’s say my company makes profit of $1 Million dollars per year, and it has 100,000 shares outstanding. Assuming I don’t pay out any dividends or anything like that, I would take the profit and divide it by the shares outstanding and get an EPS number of 10. So this means that for every share of stock my company has, it makes $10 of earnings. Now the higher the EPS, the more profitable it’s likely to be - and of course you should be comparing these EPS numbers across the particular sector so that you have a good understanding of what a high or low EPS number is.

Dividends paid by a company means the company is distributing some of their profits to the shareholders. The math doesn’t lie so instead of trying to pick the next big home run stock, a more safe consistent and proven approach would be to invest in companies that consistently pay you a a piece of their profits, thank you very much, and then reinvesting that back in to grow your portfolio larger and larger over time. Now here’s the thing - there will always be a balance that you have to determine is right for you between the dividend paid out and the appreciation of the stock price. A lot of the times when you have a high dividend, the stock price doesn’t grow as much or can even go down. This is why you see high growth stocks rarely pay dividends because they decide they would rather use their profits to grow their company even more rather than giving their money to you.

I am not a financial advisor - none of the above video is meant to be taken as investment advice. I am just showcasing MY own strategy and my investments should not be tried and duplicated based solely off the information in this video for risk of losing money.