Our editorial team follows a highly structured process when choosing financial products and services. This allows us to provide a cohesive and thoughtful selection of options based on a specific criteria.
Curious about how we do this? Keep reading to learn about how we rate and review various financial products.
How we identify top stocks
Based on the ValueWalk mission, you’ve probably understood that value investing is at the core of our brand’s initiative.
Therefore, we don’t cut corners when curating stock selections, such as in our recent guides to the Best AI Stocks and Best Tech Stocks.
The following section details our stock selection process.
Stock methodology
We consider a wide range of factors before choosing the best (technology) stocks for investors. We take into account the following:
- Stock performance: One of the key factors we look at is the performance of the stock. Specifically, we want to know if the stock has a history of outperformance, consistently beating its benchmarks over the long term. We generally look back at least 10 years and favor a longer term view than a shorter term snapshot.
- Earnings growth: We examine how consistent the company has been in generating year-over-year earnings growth. Ideally, we are looking for stocks that generate double-digit annual earnings growth on an annual basis over a multi-year period.
- Reasonable valuations: As these are technology stocks, they are going to generally have higher price-to-earnings ratios than value stocks or stocks from other sectors. That said, we want to ensure that the P/E, price-to-sales, and other valuation measures are not unusually high – that is well beyond historical ranges. This could signal that factors other than revenue or earnings are driving the price higher and may not be sustainable.
- Market share: It is important to consider how dominant the company is in its given market or markets. Is this company a leader in its market? Is it among the leaders in multiple markets? Many of the top stocks, like Amazon, for example, are leaders in multiple markets. Market leaders are generally going to have strong earnings power. Also, is the company gaining, or losing, market share?
- Competitive advantages: A key to a company’s enduring success is its competitive advantages. We look at whether or not the stock has advantages over its competitors, whether its scale, pricing power, a product or service that is best-in-class, or a moat that makes its advantages hard to overcome or penetrate.
- Growth catalyst: In addition to any competitive advantages, it is important to look for other growth catalysts that could spur the stock higher. Did it expand into new markets through an acquisition, are there new or pending regulations that could help or hinder the company, are there new products coming, are there changes in the industry? These are just some examples.
- Capital/financial strength: The foundation upon which a company can grow is its financial or capital strength. We look to see if it has a significant, and growing, amount of operating cash or free cash flow, because that will allow it to invest in its future growth or navigate downturns. Also, we look to see if its debt is reasonable so that a disproportionate amount of earnings isn’t going to pay down debt.
- Efficiency: Another key consideration is how efficient the company is in turning a profit. While all industries are different, the operating margins and profit margins will give you a sense of how much a company is spending to generate profit. Higher, and rising, margins mean the company is operating more efficiently.
- Stable leadership: We look at the leadership of the company and how stable it has been over the years. While a lot of turnover in the corner office is a sign of instability, the best companies tend to have longer tenured CEOs and seamless succession plans.
- Analysts’ estimates: While we don’t solely rely on what Wall Street analysts think of a company or stock, we certainly gauge their consensus recommendations and price targets in determining the best stocks.
How we assess cryptocurrencies
When selecting crypto assets, our expert review team compares criteria to determine whether it’s an attractive coin for specific types of investors and their risk appetite and interests. Additionally, we consider the pros and cons of each coin.
In doing so, our research process includes consultation with several in-house cryptocurrency and investment experts with more than a decade of combined experience.
Depending on the token, these attributes could include:
- Utility tokens: A token that serves a specific function within a blockchain ecosystem.
- Stablecoin tokens: A token that is pegged to asset-backed securities, such as fiat currencies that minimize volatility
- Privacy: Focuses on anonymous transactions for heightened security
- Consensus mechanisms: Proof of Work vs. Proof of Stake vs. Delegated Proof of Stake
- Scalability: How well the network handles growth i.e., transactional throughput
- Security: Resistance to attacks and fraud
- Market cap: Total value of market capitalization of the specific crypto
- Supply: Maximum supply vs. current circulation
- Liquidity: Ease of buying or selling without affecting the price
- Compliance: Adherence to legal standards in various jurisdictions
- Community support: Active user base and developer contributions
This approach ensures multiple aspects of a project are scrutinized when determining its likelihood of the project being among the best.
