Why Popular Stocks Arent Always The Best Stocks To Buy
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Why Popular Stocks Arent Always The Best Stocks To Buy

when you’re buying stocks it can be
tempting to have a bias towards popular stocks or those with top-tier name
recognition like Netflix or like Cisco but the name alone won’t guarantee big
gains in your portfolio that’s why it’s important to filter out the noise and
combat your bias by leveraging data and charts to help you make your buying
decisions so today let’s go over IBD’s tips for buying large cap stocks now of
course this is a great guy to use when you’re considering any stock to buy but
it’s especially important to keep in mind when you’re looking at these bigger
popular stocks to make sure your emotions don’t get in the way so first
don’t buy stocks simply because they’re widely held take GE for example that’s
one of the most actively traded stocks in the market even though shares have
essentially been in a freefall for the past two and a half years and growth has
slowed tremendously now the company is trying to turn things around but it
hasn’t been able to do so yet so instead of buying a big-name stock that looks
cheap analyze the chart and fundamentals first fundamentals are key because
stocks follow their corporate earnings remember it’s ideal to see bottom line
growth of at least 25% and it’s even better when that growth shows
acceleration and the chart is important because our research shows that buying
stocks that are already in up trends increases the likelihood of profiting
from that trade now keep in mind of course that timing when you sell is just
as important as timing when you buy now making sure the chart in the
fundamentals are up to snuff also prevents you from getting carried away
with the story of a stock this is where Tesla is a great example Tesla is no
doubt an innovative company with a great story but the stock is now trading at
the same levels it was all the way back in 2014 so if you held that stock for
five years it’s essentially gone nowhere as the company continues its cash burn
okay so now let’s put Apple and Microsoft head-to-head to demonstrate
another concept here don’t expect leading stocks will always be leaders
and don’t expect lagging stocks will always be laggards so to explain this
let’s first take a look at a weekly chart of Apple now Apple is a longtime
holding in many portfolios of course but or position traders the stock is
flashing some weakness Apple staged a breakout over a cup with handle based
several weeks ago but shares hit resistance to by point and quickly
turned tail amid broader market weakness the next week Apple triggered a sell
signal by falling more than 7% below the proper buy point that means this buy
point is no longer valid even though the stock is trying to rebound now the we
chart action comes amid fundamental weakness to Apple has now seen two
quarters in a row of declining earnings and sales growth is also week amid
waning iPhone demand so in short just because Apple has been a big winner in
the past investors shouldn’t automatically expect it to be a leader
now and moving forward now Microsoft’s chart on the other hand shows somewhat
of the opposite picture after peaking in the dot-com era it took Microsoft near
at least 16 years before it reached new high
so Microsoft was a long-term laggard until about three years ago earnings and
sales growth has consistently been in the double digits over the past year and
the chart looks strong you can see how compared to Apple shares of Microsoft
were able to hold up much better in the queue for 2018 correction Microsoft
broke out of a cup with handle base in late February and after a 22 percent run
shares formed and broke out of another base and Microsoft is currently trading
within the 5% buy zone as it seeks support at its 10-week line so all in
all don’t let a personal bias or preconceived notion get in the way of
finding the best stocks at the right time and instead of buying an individual
big cap stock that’s a laggard your portfolio would be better off buying an
ETF that contains an array of large cap stocks as its holdings we’ll talk about
what exactly the QQQ etf offers investors when we come back

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