Is your investment advisor right? Check the stocks that he is recommending.
- Sanzhi Kobzhan
- May 18
- 6 min read
Updated: May 20
Table of contents:
A lot of people want to start buying stocks to get good returns from their investments and widen the gap between earnings and spending, to afford a better life. Unfortunately, not everyone knows how to find great investment ideas and choose amazing stocks that can deliver great longer-term positive returns. That’s why people hire investment advisors, who help them find interesting stocks tailored to their risk appetite. In this article, we will consider how you can check your broker and see if the stocks he is recommending you are great buy ideas or maybe you should switch to other stocks with stronger fundamentals and higher growth potential.
Stock selection. From A to Z.
Before we start let me explain how the stock selection process goes. First you have to come up with your investment strategy, it is based on your risk appetite, for example if you are willing to take higher risk in exchange for higher expected returns, you are a risk-seeking investor, if you are not willing to risk a lot and choose less volatile investments, you are a risk-averse investor. For risk-seeking people, a good option can be growth stocks, FX, crypto, for risk-averse investors, ETFs, value shares, some income stocks, larger companies' bonds with investment grade credit rating. After choosing your risk appetite and understanding your strategy, it's time to find some great shares. Since my blog is devoted to stocks, I will be putting an emphasis on stocks.
After you came up with your strategy, it's time to pick some stocks. The initial screening process starts with the stock screener, where by putting different filtering options, you filter stocks that match your search preferences. Then, you undertake equity valuation using different valuation models to calculate the stock target price. This is the forecasted share price based on the company's forecasted financials and your custom assumptions, like the cost of money, the discount rate, inflation rate, company expenses' perpetual growth rate and so forth.
After calculating the stock target price, you can analyze the company's financials and ratios to make sure you are holding a great, fundamentally strong share that looks better than its closest peers. The last step is the portfolio management, building an efficient investment portfolio, so that you minimize your portfolio's loss or maximize the expected portfolio's return.
As you can see the process is time-consuming, it can take 3-4 weeks before you find 8-10 shares, analyze them, read company info, get familiar with their business, build a portfolio management model.
Moreover you have to restructure your portfolio if it's not efficient anymore or if individual company fundamentals change or if the stock becomes more volatile. This takes a lot of time and effort. Not everyone is willing to spend time doing this difficult analysis. That's why people hire investment advisors within the brokerage company that helps them with these things.
Is your investment advisor right? Check the stocks that he is recommending.
But how can you check your investment advisor if you don't have equity valuation or stock selection knowledge or if you don't know how to undertake fundamental analysis? There are two options you can use in this case:
Take a stock market crash course, and learn everything yourself in order to pick great stocks, manage portfolio and risk, or
You can use different stock analysis and investment tools that can help you find amazing shares and save your time. This is where the Stocks 2 Buy iOS app comes into play.
Let me demonstrate how the Stocks 2 Buy app works.
Let's say that your investment advisor is recommending you the HBI stock. You are not sure if you should buy this share. The first thing you can do is download the Stocks 2 Buy app from the App Store. After downloading the app, register, confirm your email, log in and go to the Main screen as shown in the picture below. Input the stock ticker HBI in our case and press the Show analysis button.
Mid-term trade recommendations.
As you can see from the above picture, the app provides the neutral trade recommendation, meaning that maybe it's not the best idea to buy this stock now. It has 0 sentiment, meaning that it is not getting any mentions from social media, a sentiment of 0.8 for example would mean that 80% of social media users are mentioning this stock in a positive way. A number of 0.2 would mean that only 20% of users are mentioning HBI in a positive way, this can mean that the stock can experience a downside soon. But in our case the stock is not getting any attention from people. Equity rating is Sell. It is extracted as an average rating from all the investment analysts who assign ratings. A sell rating indicates that the majority of analysts recommend selling this stock. But the company showed a great EPS surprise of 36.36% on the last reporting period. Although the EPS surprise was great, the other 2 indicators (rating and sentiment) are not good and the overall stock mid-term recommendation is neutral, meaning that it's not the best time to buy or sell the stock.
But if you are holding this stock already, a neutral recommendation may indicate that you may hold your stock, without selling it now, maybe fundamentals will improve, or if you did not buy this stock yet, a neutral rating indicates that it's not the best time to buy it yet.
Find Fundamentally strong shares.
Another thing you can do is to check if the stock is strong fundamentally. On the Stocks 2 Buy app go to the Stock Type screen as shown in the below picture (right image). After inputting the stock ticker press the Analyze button.
Let's see what the app shows us (from the above picture, right image). A Piotroski score of 4 indicates that this stock is very weak fundamentally. A score of 8 or 9 for example would indicate that this is a very strong share. But it's not our case. The stock has a 2.6% decline potential, which implies almost fair valuation to the current market. The stock has no growth potential and if you are looking for some fundamentally strong shares with high growth potential, then HBI is definitely not your pick now. The app defines this share as an Income stock, which means that the stock is paying good dividends, a 5.47% dividend yield, and in general, income shares with high dividend yields, are great stocks to hold during flat markets, because you are getting paid dividends, but not earning on price movements. 3 and 6 month growth potential of 19% and 66% respectively, indicates that the stock has grown already and given -2.6% decline potential, you should not expect any further growth.
Long story short, if you are planning to hold this share for a mid-term and consider yourself a value investor, this stock is not for you, you better avoid it now, choose some other stocks, that look better fundamentally, have a Buy rating and high growth potential. But if you are a shorter-term or intraday trader, you can still try trading this stock. For that you would need a Candle Analyst screen. This screen analyzes Japanese candlestick patterns and provides short-term/intraday trade recommendations. The graph updates every 5 minutes and gives trade signals based on candlestick analysis every 5 minutes. So it's possible to trade this stock intraday, making a lot of deals, by following the app recommendations. I have a detailed guide on how to use this screen for intraday trading. You can read my other article for that, the article is called How To Day Trade For a Living.
Can you trade fundamentally weak shares as a short term trader.
But I would not recommend trading intraday stocks that still look weak fundamentally. Why? Because if it goes lower than you expected and experiences a sharp decline, it can take a lot of time before this stock can rebound, since it's not fundamentally strong, it will not attract a lot of investors' attention and you may end up holding this stock at the bottom for a very long time. But this scenario is possible as the stock market is very risky, unexpected things, like corporate scandals, a company's bad financial report, economic tensions, can send the stock to the bottom rapidly, and even fundamentally strong stocks can fall.
But the good thing about fundamentally strong shares is that they tend to rebound fast after a major drop, which I cannot say about fundamentally weak shares.
Now you know how to pick fundamentally strong stocks and check if your broker provides good trade recommendations. Now you can practice, find 10 fundamentally strong shares with a Buy recommendation, with high growth potential that look better than their closest peers and start building your first efficient investment portfolio with minimized loss and maximized expected return. Thanks for reading my article, I hope it was helpful. Happy trading, and don't forget to undertake your own research and consider your chosen stock from different angles (using the Stocks 2 Buy app, reading investors' notes, management guidance and analyst expectations) before making your final decision.
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