How to pick the right stocks for your portfolio?

You have probably heard stories of traders making big profits in the stock market. It sounds exciting, but successful trading isn’t about blindly following trends or buying what’s popular. One wrong pick, and you risk losing hard-earned money. So, how do you identify stocks with winning potential and avoid risky bets? It all comes down to market knowledge and planning.

In the article below, we have compiled expert insights to help you analyse the markets, evaluate stocks, and select the best investments for your portfolio.

Start with the company’s financial health

A stock’s price fluctuates, but the company’s fundamentals determine its long-term success. Key metrics to keep an eye on include:

• Price-to-Earnings (P/E) ratio: A high P/E may indicate overvaluation, while a low P/E could signal undervaluation. Compare it with the industry average.
• Earnings Per Share (EPS): Consistent EPS growth suggests strong profitability.
• Return on Equity (ROE): Higher ROE is often seen positively because it signals that a company is better at turning equity into profits.
• Debt-to-Equity (D/E) ratio: A ratio below 1 indicates low debt levels.

Always analyse these financial metrics to trade in fundamentally sound companies.

Use technical analysis for entry and exit points

Fundamental analysis tells you what to buy but technical analysis helps decide when to purchase and sell. Some critical indicators to focus on are:

• Relative Strength Index (RSI): High RSI levels, above 70, indicate overbought conditions, whereas below 30 suggest oversold stocks.
• Moving averages: Stocks above their 50-day or 200-day moving averages signal an uptrend.
• Support and resistance levels: Buying near support and selling near resistance can improve returns.

Long-term traders may not depend heavily on technical analysis, but it can help them spot good entry points.

Consider dividends

Check dividend yield (annual dividend as a percentage of stock price) to analyse returns.  A good dividend payout ratio usually falls in the 30% to 50% range. This balance helps companies reward shareholders while keeping sufficient profits for growth, development, or debt reduction. Keep in mind that the ideal payout ratio usually depends on a company’s sector, development stage, and financial strength.

Don’t get caught up in the hype and think logically

Market trends can be tempting, but acting on hype without proper analysis can lead to losses. Stocks that rise quickly on speculation may fall just as fast. So, instead of making emotional decisions, prioritise factors like revenue growth, profitability, and market position. It is wise to rely on credible financial news sources, monthly/quarterly/annual reports, and expert analysis to make trading decisions.

Review and adjust your stock portfolio

The share market changes every second, and industries also rise and fall. What was once a promising stock might now be a liability, while another may have gained strength. Your financial goals may have evolved, or you might now be open to more risk. Your portfolio should reflect all these changes. Regular reviews help you identify underperforming stocks, grab new opportunities, and stay aligned with your trading or investing goals. 

To sum up

By now, you must have a good idea of how to choose the right stocks for your portfolio. A few basic yet crucial points include, assessing the company’s financial health, performing technical analysis, checking out dividend ratios, avoiding market hype, and thinking practically. You should also review your portfolio regularly and adjust as needed, whether that means holding onto strong stocks or selling underperformers. 

You can consider the MO Riise app to make your stock market journey more informed, affordable, and stress-free. The app is backed by the legacy of Motilal Oswal, a SEBI-registered public entity serving the financial industry for more than three decades. MO Riise offers expert-backed research on 260+ stocks and ETFs covering 21+ industries. This helps you quickly spot profitable opportunities without doing complex analysis.

You can also find solid stock collections in the MO Riise app, including the most searched, most bought, highest dividend-paying, and debt-free stocks. Plus, with guides, video tutorials, articles, and FAQs, it becomes easier to trade with confidence. And if you need help, 24/7 customer support is available to assist you. 

So, why wait? Begin your stock market journey with MO Riise share market app today!