22
doc • Spring 2015 • Business Section
Kentucky
Business
Signs of a
Winning Stock
By J.E. Carpenter
Investors tend to look at things
like takeover rumors when
trying to pick a winning stock.
More often than not, however,
those rumors are just that. Here
are some more reliable guides
to a company’s bright future:
1. More than one
insider is buying.
Insiders aren’t always right,
and they’re often way too early.
But if more than one insider is
giving your stock a vote of confidence by making a large purchase, it improves the chances
your stock will outperform in
the long run. Look at the size of
the insider purchases, though.
Small purchases may not be
meaningful and may even be
done in an attempt to influence
share price. Also, consider the
position of the insider in the
company. The more important
the individual is, the more
promising the purchase.
2. The company
is buying back its
shares.
With fewer shares available
supply goes down, which raises
demand for your stock. It also
indicates the company’s confidence in its future.
3. Earnings are
increasing.
More than anything else, earnings drive share price. Steadily
increasing earnings are therefore a very positive sign. Be
sure that you believe in the
sustainability of those earnings,
though. When a company is
growing too fast, it can’t possibly continue the performance
indefinitely. When growth
slows, share prices may fall fast
and hard.
4. Inventories are
declining.
When a company ships its
product as fast as it stocks
it, it’s a very good sign that
demand is increasing, which
bodes well