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Buying stocks is a popular investment choice for both novice and professional investors. Stocks provide the potential to earn higher returns than interest rates paid on government or corporate bonds, but have lower risk than real estate, hedge funds and other alternative investments. Stocks provide you with the highest returns for the investment risk you take (we call this the risk-return trade off).
But how do you choose the best stocks for your investment portfolio? And which broker matches your investment style? Read on to find the answers to these questions.
Where to Buy Stocks Online – The Best Platforms
If you want to buy shares in a company, an online broker is the fastest way to invest and trade. Online brokers provide real time price and valuation information on stocks and immediate trade execution.
Online brokers are generally cheaper than traditional brokerage houses . In addition, you have access to your account 24 hours a day and can immediately execute trades.
When you are ready to buy stocks, it is important to choose an online broker that matches your risk profile and trading style. We have chosen the following online brokers based on their trading tools and support for online stock investors.
What are stocks and what is a stock market?
When you buy stocks, you become the owner of shares in a corporation. As an owner, you have voting rights and a share in any dividends paid. In exchange, a company receives capital to run its business. If the company’s revenues and earnings are increasing, you will also make money as the stock price rises. When the stock price rises above the amount paid, you make an investment gain. When the price falls below the price paid, you realize a loss. Dividend paying stocks make regular dividend payments, providing a steady income stream.
The stock market is where buyers and sellers trade stocks of public corporations.
How is the value of a stock calculated?
In 2018, Apple (APPL) became the first stock to have a value of one trillion dollars. What does that mean? The market value of a stock is calculated by multiplying the current price by the number of shares outstanding.
Market Value = APPL Stock Price x Shares Outstanding
$207.05 x 4,829,926,000 = $1 Trillion+
What type of stocks can you buy?
The wide choice of different types of stocks allows the investor to build a custom portfolio to match investment goals. When choosing stocks to buy, start by determining your risk profile. Most online brokers and robo-advisors provide free risk assessments.
On the low end of the risk spectrum is the individual close to retirement. The retiree’s portfolio has a higher allocation of cash, bonds and low risk stocks. The lowest risk stocks are known as the blue chip stocks. These large companies have a long history of delivering consistent revenue and earnings growth while paying a steady and increasing dividend. Because they pay steady quarterly income in the form of dividends, they are called income stocks. You will not get rich overnight, but over the long-term income stocks have created more value for investors than high growth stocks.
Value stocks are stocks with financial strength – a solid track record of earnings and revenues growth – that are trading at a low price-to-earnings multiple. The low stock valuation is due to a temporary situation typically unrelated to the core financial strength of the business. For example, a decline in the broader stock market, unexpected shortage of semiconductor chips, or failure of a new product line may cause a stock to temporarily decline below its long-term expected value. This situation provides an opportunity for the investor to buy the stock at bargain prices in anticipation of profiting as the stock’s value increases.
On the higher end of the risk spectrum is the millennial. He makes $100k a year, has little or no debt and several decades to save for retirement. He may decide to allocate part of his portfolio to high growth publicly listed companies. The high growth company is growing revenues at a higher rate than average and has a high price-to-earnings ratio. The company reinvests earnings back into the company’s growth instead of paying dividends. Marijuana stocks are examples of high growth stocks. As states deregulate marijuana use, sales of marijuana are growing at more than 30 percent annually.
Penny stocks are considered very high risk high growth stocks. Penny stocks are public companies that trade at a low price (under $5) and do not meet the strict standards to list on a large exchange. Investing in penny stocks is considered speculative investing because they have a high rate of bankruptcy and scams.
Before you invest in any stock, take time to learn about the business. Remember the rule of the most successful value investor Warren Buffett – invest in companies you know and whose products you may use. Not all marijuana stocks are alike. Medical marijuana companies, for example, are licensed to sell products in many US states whereas the recreational marijuana market faces higher regulatory and market risk. No matter which type of stock you choose, you can lower your risk by doing your stock research.
Pricing of a stock
Stockholders are concerned with the stock price. The stock price is determined by the demand by buyers and supply by sellers (where the bid and ask prices meet).
A stock price can be influenced by wider market trends. Sometimes a stock price will be undervalued and other times overvalued by the market. So besides the market value, you will also want to know the true intrinsic value (book value = assets — liabilities) of the company. If the company were to go bankrupt, after paying all the debts and selling the assets, how much would be left over to pay investors?
Valuing of a stock
Many factors affect the revenues and earnings growth of a company and thus the stock price, including internal management, business competition and economic growth.
Therefore, you can never forecast a stock price with 100% certainty.
To estimate a stock’s value, we look at the stock price and related valuation measures. The most commonly used stock performance measures are the price to earnings ratio (P/E ratio) and price to book value ratio (P/B ratio). These measures are used to compare a stock’s current performance to its past performance , as well as the performance of other stocks and stock indexes.
The longer a stock’s history the more accurate a price forecast can be made based on past performance. Johnson & Johnson, for example, has increased its dividend every year since 1963. A consistent dividend payout is an indicator that a company is operating efficiently. This past performance is an indication, but not a guarantee, that the stock will do well in the future.
You also need to consider qualitative factors, such as general business conditions. If a pharmaceutical company gains 60 percent of sales from a drug patent that is about to expire, you will want to know what new drugs are in the pipeline.
Most investors buy stocks through a broker. A broker acts as a matchmaker between the buyer and seller. Online stock brokers provide a number of advantages over traditional brokers, including:
✅ Trade anywhere – More and more investors trade on mobile devices. You can trade while waiting for a bus, during the opening act of the Verdi opera, or in the elevator on the way to work.
✅ Low or no fees – Though online brokers do charge fees, they are significantly cheaper than those charged by traditional brokers. Many individual investors can access all the trading tools they need from a discount broker. Brokers offer different levels of account services to meet the needs of different investment styles
✅ Instant trade execution – Trading on market news was impossible in the old days when investors would buy shares in a company by telephone. Today, as soon as the news is released, you can place an order with a click of a mouse.
✅ Many investment securities – Online brokers make it easy to diversify a stock portfolio across asset classes. The inverse correlation of bonds and CDs or higher risk currencies and commodities, hedging with futures and options and diversified ETFs and mutual funds all provide ways to hedge stock price movements.
✅ Stock trading research, price charts and technical indicators – Basic accounts provide access to basic fundamental research, technical analysis tools and order execution.
Buying Stocks Through Traditional Brokerage Services
Buying stocks through a traditional brokerage service is a more time-consuming and expensive process. Consider a traditional broker if you seek:
☑️ Regular investment guidance – An active broker may call you up to introduce an interesting new stock or mutual fund. Or he may suggest it is time to rebalance your portfolio.
☑️ Financial advice – A financial advisor provides guidance on portfolio allocation, tax planning, and retirement and insurance products.
☑️ Wealth management advice – A wealth manager will guide you on accounting and taxes, estate planning, and family office planning – and may even provide you with concierge services.
☑️ Face-to-face meetings – After meeting to open your account, brokers typically request quarterly meetings to review your investment performance and introduce you to new products.
☑️ An investment risk assessment – The broker will determine your investment risk profile. For a retiree, for example, a broker may suggest a higher allocation in cash, bonds and value rather than growth stocks. Whereas a millennial may also dabble in real estate, currencies and commodities, and REITs.
☑️ Portfolio rebalancing – Annually or as market conditions change, your broker will rebalance your portfolio.
Brokers work on commission. All of the above services provide an opportunity for the broker to introduce you to new investment products and services. Many online brokers offer premium clients all or some of these services.
Check your monthly statements to ensure all orders were executed in a timely manner and the correct fees charged.
Common broker practices to be on guard for include:
❗️Charging hidden fees
❗️Selling in-house products when other products would have provided a better risk-return tradeoff for the client
❗️Recommending preferred mutual funds, ETFs, and other investment products in exchange for kickbacks (commissions)
Ways to Invest in Stocks Without a Broker
Direct Stock Purchase
Companies, mostly blue chips, sell stocks directly to investors through direct stock purchase programs (DSPPs). Options include making a one-time purchase or payments deducted over six or more months. A low trading fee may be charged.
Most employee pension plans offer a self-directed investment option. This allows the employee to choose their own stocks, mutual funds, ETFs and other securities. These portfolios may be restricted to a universe of mutual funds or ETFs.
A Beginning stock pickers can find stock picking among the large number of listed companies challenging. Fortunately, based on past performance, the stock metrics that are an indicator of future performance are well known. They include steady revenues and earnings growth, and dividend payouts. The novice investors should choose stocks based on these and other strong fundamentals. These stocks are more likely to perform well even in a market downturn.
These 10 stocks are good examples of stocks with strong fundamentals that have delivered long-term value to shareholders.
The diversified automotive manufacturer makes cars, vans, trucks and buses. Like many big auto firms, Daimler is making electric cars and trucks and will compete with market leader Tesla. The Germany company is the largest truck maker in the world and thirteenth in the car market. The US-China trade was has impacted international sales. The stock is currently undervalued.
- Daimler has formed a $1 billion mobility services joint venture with BMW to provide electric car ride-hailing, parking and charging services.
- China’s Geely, which owns 10 percent of Daimler, is partnering with Daimler on an electric smart car for China.
- Its subsidiary Mercedes-Benz, maker of America’s favourite luxury car, is about to register its ninth year of record sales.
Because you depend on this trusted aspirin brand when you have a headache or cold for relief and comfort, you should consider placing it in your portfolio. Like Merck and Pfizer, Bayer is a trusted pharmaceutical brand by consumers. Bayer consistently grows revenues and earnings, and thus is considered a safe stock.
- Strong sales from blood clot prevention drug Xarelto and retinal disease drug Eylea
- Half a dozen strong selling brands being launched in new international markets
- Leader in global crop science market, which is experiencing robust international growth
- Consumer health division has rebounded with strong Asian and Latin American growth
- Sales and profit growth forecasted across all business segments in 2019
This diversified chemicals company may not be a household name but its products are everywhere in our homes and offices. BASF operates in the chemicals, plastics, agricultural, oil and gas, and paper markets. Strong dividend growth in good times and bad has won loyal investors. The stock, hit by the China-led auto market slowdown, is trading at a two-year low. Here’s why it could be a long-term buy:
- Increased sales and efficiencies expected from $9 billion acquisition of Bayer ag science businesses, and buys in 3D printing and nylon markets
- Sale of construction, paper and water assets to focus on more profitable businesses
- Prices and volumes increased in 2018 in midst of global slowdown and China-US trade war
If you do not have a Starbucks in your neighbourhood, you likely will soon. The world’s favourite coffee shop is opening up on hundreds of corners in China and India. Luxury goods companies Estée Lauder and Louis Vuitton are other examples of consumer brands with strong long-term growth prospects in emerging markets. The coffee house that started in Seattle in 1985 now has over 27,000 stores.
- With half of stores in the domestic US market, developing markets are a strong long-term growth engine
- Moving into dining cafes in China to capture rising middle class incomes
- The popular coffee chain has not been impacted by the US-China trade war in China
- Siren specialty group formed to drive growth in Roastery, Siren and bakery stores, including new 4-story Tokyo Roastery
Apple, a widely held blue chip stock by investment funds, is one of the most popular consumer brands globally. Like other fund favorites Microsoft (MSFT) and Johnson & Johnson (JNJ), Apple pays a regular and growing dividend. Regular dividend payers are typically strong operators who consistently increase income.
- A recently launched deal with Alipay to provide interest free financing to Chinese iPhone buyers is expected to boost sales in the region
- The newest models of iPads, iPhones and iWatches will increase sales by the end of the year
- Services division sales grew 24 percent in 2018 as customers buy more music and apps from iTunes
- Healthy Mac sales have moved the PC maker into fourth global market position
Like other FAANG stocks, Facebook, Amazon, Apple, and Netflix, Google’s parent consistently reports strong revenue growth. These companies hoard their cash rather than pay dividends. This cash cushion has allowed Google to make acquisitions to ensure continued growth. Alphabet’s strong commitment to fostering an R&D culture will pay off in coming years.
- Revenues from the Waymo self-driving car could surpass those of the Internet ad spending business in five years
- Alphabet’s drone delivery service Wing and balloon Internet company Loon are ready for commercialization
- Investment in AI is creating more efficiency in Google’s $26 billion internet ad business
Advanced Micro Devices (AMD)
Advanced Micro Devices is a semiconductor company that makes chips for business and consumer computing devices. The technology downturn in 2018 did not keep AMD stock down for long. In the competitive graphics card business, AMD competes with NVIDIA and Intel. Amazon, Baidu and Microsoft are customers.
- AMD is ramping up production of graphic cards for gaming and cryptocurrency mining, two high growth markets increasingly dependent on cryptocurrency valuation.
- Chip makers of high-performance chips for gaming, cryptocurrency mining and other AMD markets have performed better than the overall sector.
- In the high growth cloud computing and data centre market, AMD is prepared to cruise past NVIDIA with a smaller, more powerful 7nm Radeon Instinct data centre GPU accelerator.
Global pharmaceutical company Merck was the darling of the Dow in 2018. Global pharmaceutical company Merck was the darling of the Dow in 2018. A blockbuster lung cancer drug called Keytruda is expected to buoy revenues in coming years. The big pharma company is growing quickly through acquisitions having acquired a dozen companies in five years.
- The drug producing a more than 50 percent survival rate when used with chemo for non-small cell lung cancer (NSCLC) is becoming the standard treatment for NSCLC in the United States.
- The FDA product pipeline is full of late stage drugs awaiting regulatory approval. Over 34 drugs are in Phase II and III stage, 62 percent of which are cancer drugs.
- Merck creates value for shareholders through a regular and increasing dividend and stock buybacks. A $10 billion repurchase program is ongoing.
Experian PLC (EXPN.L)
Experian is one of the big three global credit bureaus, together with Equifax and TransUnion. The company’s main business consumer credit services provides personal and business credit scores and reports. It also provides data analytics and marketing services. In identity theft protection services and insurance, this top three player provides advanced applications in mobile biometrics, voice recognition and facial ID.
- Online, P2P, micro-loans and other new forms of personal and business lending are driving strong demand for credit applications
- After expanding through acquisitions in Europe, North America, Asia, Africa and Latin America, analysts expect efficiencies and synergies across its acquired businesses to drive stronger revenue and earnings growth over the next five years.
- Experian pays a regular and growing dividend.
Tesco, Britain’s largest retailer, is celebrating 100 years in business this year. The grocer has expanded into clothing and general merchandise and does $51 billion in annual sales. Tesco has double the UK sales of its closest competitors and also operates in Europe and Asia.
- After improving operating performance and reducing debt during the two-year retail sales lull, the leaner Tesco is well positioned for revenue and income growth.
- In the slower than expected holiday season the company registered stronger sales growth than its competitors.
- Tesco has partnered with the WWF to ensure its product ranges are sustainable and chef Jamie Oliver to help customers make healthier food choices.
- Tesco reinstated its dividend in 2017, after discontinuing it in 2014, a strong indication that the retailer views itself back on the road to long-term profitability.
AutoTrader Group PLC (AUTO)
Since this digital auto market went public in 2016, revenues, income and operating margins have been growing at a steady pace. Auto Trader is a vehicle marketplace where consumers buy cars, trucks, vans, motorcycles and farm machinery from dealers and private sellers. The Dublin-based company has become the number one site to trade cars. Buyers can also find car loans, insurance and related products.
- Revenues from vehicle advertising and display advertising from manufacturers, lenders, and insurers are growing
- The auto marketplace is benefitting from the trend towards buying cars through a monthly subscription. Auto buyers can search by monthly price on the AutoTrader site.
- As new car sales decline, an increase in demand for used cars is raising prices.
Ocado operates in one of the fastest growing segments of online retail – online grocery order and delivery. Six percent of UK households buy their groceries online versus 2 percent in the US. Amazon recently spent $1.4 billion on the acquisition of Whole Foods to enter the grocery business., where Walmart is already a competitor. Ocado is likely to lose its near-monopoly as more competition enters the UK market, but it is all good.
- Ocado is the parent of Ocado Technology, the maker of the robotics that operate Ocado’s efficient food fulfillment centres.
- Ocado is helping retailers move online by providing robotics, cloud, AI, and IoT technology to retailers, including Kroger, Morrisons, Claire and Fetch.
- Amazon is among the retailers currently investing large sums in robotics to improve its profit margins.
- Ocado has recently signed a deal to help put some of Kroger’s $122 billion in retail sales online and build robotic warehouses as part of Kroger’s plan to take on Amazon.
Carnival Corporation (CCL)
Carnival has become the world’s leading leisure travel company by investing heavily in providing a superior passenger experience. Its nine cruise lines hosted 12.4 million passengers in 2018. Twenty five percent of revenues come from non-ticket sales. They include air transportation, excursions, casinos, spas, and other amenities.
- Passenger capacity is expected to grow at a rate of 5.6% from 2018–2022.
- Carnival is building and putting afloat 22 new cruise ships by 2025.
- Its award winning OceanMedallion™ wearable device is one way it is improving operational efficiency. Guests can order services, settle payments, gain keyless access to rooms, and enjoy many other conveniences.
- Its second largest cruise line Princess Cruises – the number one cruise line in China, Taiwan, and Japan and other markets – has launched its first international ad campaign.
- Carnival pays a regular and rising dividend.
Over 500 million people shopped on Alibaba’s Taobao (consumer-to-consumer) and Tmall (business-to-consumer) marketplaces in 2018. Both revenues and profits have been growing at close to 50 percent.
- As the middle class grows in China, Southeast Asia and elsewhere, Alibaba expects to gain one trillion customers by 2036.
- Digitization of its online platform (robots in packaging/delivery, chatbots in customer service) is driving e-commerce growth of 20-30 percent.
- Revenues are being diversified through the high growth Cloud and Entertainment and Media segments. Alibaba Pictures co-produced this year’s Oscars winner GreenBook. More movies are in the pipeline.
China Telecom (CHA-US)
All the users of Alibaba, Baidu (BADU), Sina Weibo (WB) and other Chinese e-commerce and social media players need mobile phones to access these services and China Telecom is supplying them. The state-owned company is number one in fixed line telephone service and number three in mobiles.
- Mobile subscriber growth doubled in 2017 to 250 million.
- As 4G subscribership surpasses 1 billion, China Telecom is preparing for the roll out of 5G networks.
- The smart home and cloud businesses are rapidly growing and increasing data usage.
- China Telecom is focused on expanding into other developing markets, and is currently developing a network in the Philippines.
Infosys provides technology services and consulting worldwide. Revenues are diversified across industry sectors. The company is currently focused on geographic diversification. Over 80 percent of sales come from the United States and Europe. Infosys is focused on growth in the Asian region.
- Infosys is investing in expanding in high growth Asian and digital businesses.
- The company has formed joint ventures with Hitachi, Panasonic, and Pasona to create a digital procurements platform.
- A JV has been formed with Temasek in Southeast Asia to expand its cloud and AI services.
- After strong growth across industry segments, Infosys has increased its 2019 revenue forecast to 8.5–9%.
TATA Motors (TATA)
Tata Motors sells vehicles in 50 markets worldwide. In addition to low budget cars, the company sells trucks, utility vehicles and defence vehicles. The company recently entered the electric vehicle market. Though overall performance is down due to slower retail sales in China, Tata expects a strong rebound in China sales.
- Tata TIGOR Electric car has gained a first mover advantage as India transitions to all electrical vehicles by 2030.
- New models have been introduced in best-selling Jaguar i-PACE and Range Rover Evoque lines, and the new Land Rover Defender will be launched in 2019.
- Forecasting future demand in China, Tata is developing sustainable dealer models in China, with a focus on promoting premium models.
Best Stocks to Buy
Facing historically low interest rates over the past decade, investors are well-advised to invest in stocks to seek higher returns. Online brokers make it easy to buy and sell stocks from your home. Keep in mind, though, that stocks can decline in value.
Lower your risk of loss by taking advantage of the wide variety of stocks and other securities offered by online brokers to build a diversified investment portfolio. Make good use of investment and trading education offered by online brokers. One of the best ways to develop your investment and trading skills is to follow top performing traders through social trading and learn about different investment strategies.
Start with safe stocks with strong fundamentals. Make good use of your online broker’s research tools to conduct fundamental analysis. Remember to consider the intrinsic ‘true’ value of a stock, not only its market value.
As you become more comfortable trading and develop a diversified portfolio, you may choose to dedicate a larger allocation to higher risk stocks with the potential for higher returns. You can improve your risk-return profile by choosing a broker that matches your investment style.
A take profit order is a limit order stating the price at which you want to close out an order. The shares will be automatically sold at this price. If the price of the stock rises, when it hits the take profit level, the trade is closed at a gain.
A stop loss order is a limit order stating the price at which you want to close out an order. The shares will be automatically sold at this price. If the price of the stock declines, when it hits the take stop loss level, the trade is closed at a loss.
Many online brokers provide trading and investing education. You may also choose from a wide of investing seminars. A benefit of signing up with a broker with good training and education resources is you can learn using the trading environment and tools you will be trading with. Trading platforms such as eToro also offer social trading. Also known as copycat trading, social trading allows you to copy the trades of the best performing traders and learn their strategies.
Beginning investors sometimes confuse online trading with day trading. The day trader trades securities over a short time period (typically within a day) seeking to profit from small price movements. Both long-term investors and day traders use online brokers to buy and sell securities over the Internet.
A margin account is a loan from a brokerage that allows investors to invest more money than what is in their cash accounts. Instead of paying the full amount for a security from a cash account, the investor pays for part of the total purchase cost and borrows the rest. The investor has more purchasing power and can invest more. The margin loan is secured by the securities. If the securities that secure the margin loan fall in price, the investor will receive a ‘margin call’ to deposit the difference in the change in value.
All types of securities are traded online today. The average investor can invest in cash, bonds, equities, ETFs and mutual funds. An investor with a higher risk profile may choose a broker with access to REITS, currencies, commodities, preferred stock and debt securities. Alternative investments such as initial public offerings, limited partnerships, and hedge funds are sold directly to wealthy investors.
When you invest in any type of security, there is a risk of losing part or all of your investment. Before beginning investing, you should determine your risk profile to ensure you do not invest money you cannot afford to lose. Invest in stocks that match your risk profile. The Sharpe Ratio is a measure of the risk of a security relative to the return earned. Most stock profiles such as Yahoo Finance will provide you with the Sharpe Ratio so you do not have to be concerned with how to calculate it.
For example, here is the Sharpe Ratio for three types of stock investments:
S&P 500 – 1.0
This measure of risk-adjusted returns tells you how much a stock’s performance varies over time.
Social trading allows investors to copy the trading strategies of their peers. On eToro, for example, a trader’s portfolio can be copied with a click using a proprietary copy trader tool. Social trading is a low cost way to learn how to trade and improve trading skills.
The price-to-earnings ratio compares the stock price to the actual earnings of the company. The P/E ratio is calculated by dividing the stock price by the earnings per share (EPS).
The price-to-book ratio measures the intrinsic value or book value of a company. The P/B is calculated by dividing the book value (assets minus liabilities) by the number of shares outstanding.
- 1 Where to Buy Stocks Online – The Best Platforms
- 2 Spreads
- 3 Accepts:
- 4 Spreads
- 5 Accepts:
- 6 Spreads
- 7 Accepts:
- 8 Spreads
- 9 Accepts:
- 10 Spreads
- 11 Accepts:
- 11.1 1. eToro
- 11.2 How to Trade Shares on eToro (Tutorial)
- 11.3 2. Ally Invest
- 11.4 How to Trade Shares on Ally Invest (Tutorial)
- 11.5 3. Markets.com
- 11.6 4. 24Option.com
- 11.7 5. DEGIRO
- 11.8 6. Zacks Trade
- 12 What are stocks and what is a stock market?
- 13 How is the value of a stock calculated?
- 14 What type of stocks can you buy?
- 15 Benefits of Buying Shares Through an Online Broker
- 16 Buying Stocks Through Traditional Brokerage Services
- 17 Ways to Invest in Stocks Without a Broker
- 18 Which stocks and shares should I buy in 2019?
- 18.1 Germany
- 18.2 USA
- 18.3 UK
- 18.4 China
- 18.5 India
- 18.6 Best Stocks to Buy
- 19 Conclusion
- 20 FAQs