How Do You Choose a Top Stock?

In a market filled with volatility, uncertainty and curveball highs and lows, it’s inevitable that many companies won’t make it out in one piece.

However, that then begs the question – what’s the key to keeping a company’s shares in the green? How can shareholders invest and know their stocks will remain top dollar?

When you think of a top contender on the stock market, where does your brain take you? Do you think of the heavyweight champions that we’ve come to know like Apple, Google and Facebook?

While many of us weren’t able to get our hands on big-name stocks before they became too expensive to buy into, it’s important to know what to look for in up-and-comers.

Choose a top stock: Diamonds in the rough

As an example, let’s look at Garibaldi Resources (TSXV:GGI), the company that took the Venture 50 2018 list’s #1 spot. From December 2016 to December 2017, the company’s share price jumped from $ 0.14 to $ 2.46, an astonishing 1,722 percent gain. It also saw a 2,351 percent increase in its market cap during that same time frame.

For a junior mining company, those are some big numbers.

According to Andrew Pollard, president of The Mining Recruitment Group, Garibaldi was a perfect example of how a fresh idea, project or angle can create a rapidly-evolving bandwagon effect among investors.

“They were able to sort of capture lightning in a bottle with their [E&L Nickel Mountain] project,” Pollard said. “The idea there was a project that the market had missed in a good jurisdiction that would seemingly possess untapped potential. And in this case, it was the excitement and the euphoria which got people piling in because they wanted to beat everyone else and say that they were an early investor in them.”

The company acquired the E&L nickel-copper-gold deposit in June 2016, located at Nickel Mountain in British Columbia, Canada. According to Garibaldi, no documented exploration work had been conducted at the site since 1990. However, strong drill results subsequent to the site’s acquisition led a sea of curious investors to help finance both the company and its projects in late 2017.

Choose a top stock: Fresh ideas to the table

In the case of Garibaldi, investors were able to place their confidence in the promise of its ongoing work and soon-to-be unearthed potential. Similarly, those who can pinpoint a fresh idea – whether that be a project, product or simply an innovative approach to one of the two – are likely to reap serious rewards from it.

“The secret sauce is finding the diamond in the rough or the needle in the haystack which isn’t just the recycled project,” Pollard said. “It’s about finding companies doing something new or working on something new, but also trying to stack the odds in your favor.”

Pollard touched on the emergence of lithium in recent years as an example of how new ideas and products, such as the growing market for electric vehicles, can propel a previously quiet commodity forward.

“Up until a few years ago, [lithium] just wasn’t a sector that had really any sort of following whatsoever. Then it just took a new company that came out … [and] they spoke very little about their project and focused all of their attention on what the overall implications of new technology, in terms of the switching from gas-powered cars to electric cars, would mean to the lithium market.”

Equally important to innovation, however, is a company’s actual ability to deliver on its promises.

Daniel Glazerman, vice president at Evans Investment Counsel in Toronto, Canada, told Investing News Network (INN) about how investors need to feel that they can rely on their stocks to perform as predicted.

“The market does not like surprises,” Glazerman said. “A lot of sophisticated investors and investment firms are obviously looking for a company that says they’re going to do something and then they’re able to deliver on that promise.”

“If this company is given guidance and said, ‘You know? We feel good about this, we feel good about this,’ and, all of a sudden, they report earnings that [aren’t] anything close to what they had indicated during the quarter, the market’s going to react fairly negatively to that.”

Choose a top stock: Riding the highs and lows

Any company can face market volatility based around a handful of reasons, whether it’s a scandal surrounding its operations similar to Facebook and Cambridge Analytica, or simply handling the ebb and flow of commodity values.

While the common thought process is often to sell shares when a company hits a rocky patch, Glazerman believes that it’s up to the investor to ensure their success by making logic-based decisions.

“The average investor lets emotion dictate many of their investment decisions rather than it being a fundamental decision, and investment success is by, in large part, controlled by keeping your emotions in check.

“There’s so many factors and considerations that you need to put into a buy and sell decision when it comes to stocks and emotional decisions based on one tidbit of information or on a moment of consumer sentiment on a stock is not a sound investment thesis,” Glazerman told INN.

He went on to liken the process of buying and selling stocks to marriage and divorce, explaining that investors need to sit down and think through their decisions before moving too quickly only to later realize they’d made a mistake.

“You give thought and consideration and you do your due diligence before you marry someone generally speaking, and the first sign of a fight doesn’t necessarily dictate that you get a divorce or separation.

“You need to figure out why something’s happened and what’s the long term ramifications of this decision or of this problem. How’s it going to impact the company? And really be thoughtful about it rather than just [saying] ‘Okay. Well, they missed earnings. I’m going to sell the company.’”

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.

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