David Fessler, and advisory panelist for The Oxford Club, reveals here how he researches a new stock opportunity. Dave says finding the next big idea requires a lot of patient news reading and stock screening. You need to ask the right questions about how a stock fits into the bigger market picture. And doing your homework is a must…

This from Dave:

First of all, when doing your own stock market research for the next “big idea,” there’s no substitute for reading… a lot of reading.

This involves sitting at the computer for hours at a time (I have a very comfortable chair). I routinely read The Wall Street Journal, Investor’s Business Daily and Barron’s. Most newspapers are also available in electronic format, which – in addition to saving trees – is great if you want to save an article. It also gives you access to the publication’s archives, most of which have reasonably good search capabilities.

When I come across an article I’m interested in, I save a copy of it on my computer. I have a detailed hierarchical folder setup to store everything. How you set up your computer’s filing system will determine how easily you can find something later.

I also read several monthly magazines, financial books and more than a few investment advisory newsletters. Many of those are available in electronic format as well. All are great sources of ideas, but the one thing you need to do when deciding where to invest is try to figure out what the next “big idea” is.

Finding Companies For Your Stock Market Research

Let’s assume you have a sector you’re interested in, and you’d like to get a list of the companies in that sector for your stock market research. Yahoo! Finance has a great stock screener, and it’s free. You can enter sector information and let it pick the stocks for you. Then it’s easy to refine your search based on annual revenue, profits and dozens of other parameters.

Other great stock screens can be had from ValueLine Investment Survey and Investor’s Business Daily.

IBD offers a “Screen of the Day” for subscribers, and it also rates or grades publicly traded companies on earnings performance, relative price strength and a number of other criteria that should be considered when choosing a company.

(Of course, you can save yourself a ton of time and money by joining The Oxford Club. That’s where we distill all of our stock research and present specific investment ideas each month.)

Stock Market Research - Looking At The Big Picture 

Once you’ve collected all your stock market research, it’s important to see how the company you’re researching fits into the big picture. I start asking myself lots of questions:

• Will it resist downward movement if the sector tanks?
• How does it stack up to the competition?
• How will the state of the overall economy affect the company and its share price?
• What about Wall Street?
• What do they think of the stock? Should we care?

I always check out analyst ratings, but rarely use them as part of the decision-making process. Some stocks aren’t followed heavily, and one or two analysts can easily get it wrong.

Once in awhile, an investment opportunity comes along that is so compelling that it seems too good to be true. Often it is, but sometimes it bears further investigation. I did just that earlier this past spring, when I flew to the company headquarters and met with the CEO. It was only after that meeting that I decided it was a worthwhile investment.

Bottom line, researching companies is hard work, but it can be lucrative if you do your homework. Test your thesis by asking yourself (and others) lots of questions. It’s what all professional analysts do.

And a few of the good ones even do it well.

Source: How to Find Winning Stock Ideas on Your Own