How to find good stocks: A practical guide

How to find good stocks

This guide explains how to find good stocks for individual investors using a practical, research-driven approach. Within the first 100 words you will learn the definition of “good stocks,” the steps from idea generation through monitoring, and where to use tools (including Bitget for execution) to implement your process. The phrase "how to find good stocks" appears throughout to make the process searchable and easy to follow.

Introduction and purpose

Picking stocks without a system often leads to emotional decisions, concentration risk, or chasing short-lived trends. Learning how to find good stocks systematically helps reduce common pitfalls: confirmation bias, chasing hype, overtrading, and ignoring risk management. This article outlines a research workflow from idea generation → screening → fundamental and qualitative analysis → technical timing → execution → monitoring. Follow a repeatable process and document decisions so you can improve over time.

As of 2025-12-31, according to reporting by The Motley Fool and Investopedia, market-level indicators and sector news (for example the Buffett indicator and pharma GLP-1 developments) highlight why a systematic approach to stock selection and portfolio sizing matters for long-term outcomes.

Define your investment goals and constraints

Good stocks for one investor may be poor choices for another. Define these personal parameters before you search.

• Time horizon: Short-term traders prioritize liquidity and technical setups; long-term investors prioritize durable earnings growth, cash flow, and management quality. How you answer this determines which stocks suit you.
• Risk tolerance: Conservative investors prefer stable, dividend-paying names or core ETFs; aggressive investors may target small caps or high-growth companies with more volatility.
• Liquidity needs: If you may need cash soon, favor more liquid, larger-cap names or hold a cash buffer.
• Tax situation: Taxable vs tax‑advantaged accounts influence whether you prefer tax-efficient ETFs or long-term holdings (qualified dividends, long-term capital gains).
• Portfolio objectives: Are you building a core diversified portfolio, adding satellite high-conviction ideas, or trading tactical momentum? Your objective defines the kinds of “good” stocks you seek.

Define measurable criteria (target return, max drawdown tolerance, position-size limits) up front so “good” is an objective concept in your process.

Types of stock strategies and investor styles

Major approaches help determine which metrics and screens matter when you learn how to find good stocks.

• Value investing: Seeks undervalued companies relative to fundamentals. Priorities: low P/E, low P/B, strong free cash flow, margin of safety.
• Growth investing: Targets firms with above-average revenue or earnings growth. Priorities: revenue growth rates, PEG ratio, reinvestment efficiency, scalable business models.
• Dividend/income: Focuses on reliable cash distributions. Priorities: dividend yield, payout ratio, free cash flow, dividend history.
• Momentum/technical: Buys stocks showing relative price strength and positive technicals. Priorities: relative strength, moving averages, volume trends.
• Small-cap / micro-cap: Targets smaller companies with higher growth potential but more risk. Priorities: revenue acceleration, management quality, balance-sheet health, liquidity.
• Index/ETF-led: Uses diversified funds (core) and adds individual stocks as satellites. Priorities: low fees, diversification, tax efficiency.

Each style uses different data sets and tools. For example, growth investors often prioritize revenue and gross margin trends, while value investors focus on valuation ratios and balance-sheet strength.

Idea generation — where stock ideas come from

When asking how to find good stocks, start with many potential ideas and funnel them down. Common idea sources:

• Thematic investing: Identify durable themes (e.g., AI, healthcare innovation, clean energy) and map leading and rising companies in those themes.
• Sector/industry research: Read sector reports and monitor cyclical vs defensive positioning.
• News and earnings calendars: Earnings beats/misses, guidance changes, M&A, regulatory approvals. As of 2025-12-31, recent pharma news around GLP-1 pills showed how regulatory events can swing valuations quickly (source: The Motley Fool).
• Analyst coverage and IPO pipelines: Analyst notes and filings can surface opportunities, but read the assumptions closely (see later section on evaluating analyst reports).
• Screeners and watchlists: Use quantitative filters to surface candidates (see Stock screening section).
• Retail and consumer checks: Monitor user reviews, store visits, social trends, and e‑commerce signals for product-market validation.
• ETF holdings and rotation: Which names are overweight in mid-cap or sector ETFs? For example, mid-cap ETFs have been highlighted as potential opportunity pools in recent market commentary (source: Investopedia).

Keep an “idea inbox” (watchlist) and apply initial quantitative filters before deeper analysis.

Stock screening and quantitative filters

Screening turns a broad investable universe into a manageable watchlist. Learn how to find good stocks by building sensible screens.

Key screening steps:

1. Define universe: All US stocks, global ADRs, specific sectors, or market-cap ranges (large-cap, mid-cap, small-cap).
2. Apply size filters: Market cap thresholds help match liquidity to your strategy (e.g., >$10B for core positions, $300M–$10B for growth/small-cap ideas).
3. Growth and profitability filters: Revenue growth (year-over-year, 3‑yr CAGR), earnings growth, gross/operating margins.
4. Valuation filters: P/E, EV/EBITDA, P/S, price-to-book.
5. Balance-sheet health: Current ratio, debt/EBITDA, interest coverage.
6. Momentum/relative strength: 3‑month and 12‑month relative returns vs peers or index.
7. Quality filters: ROE, ROIC, and consistent free cash flow generation.

Use broker screeners (Charles Schwab, TD, Saxo, CommSec) and third‑party tools (TradingView, Stock Rover) to combine filters. Narrow a universe (e.g., 5,000 → 200 → 20) and then prioritize for deeper fundamental review.

Practical tip: Save screening presets and export results to a spreadsheet or your watchlist tool. Re-run screens monthly to refresh candidates.

Fundamental analysis

Fundamentals tell you whether a company’s earnings and cash flows justify the price. When learning how to find good stocks, fundamentals form the core decision basis for medium- to long-term investors.

Core items to analyze:

• Business model: What does the company sell, and how does it make money? Are revenue drivers recurring or transaction-based?
• Revenue drivers and scalability: Identify unit economics, customer acquisition costs, churn, and addressable market size.
• Competitive position: Market share, moats (brands, network effects, regulatory advantages), and pricing power.
• Management quality: Track record, capital allocation decisions, transparency, and alignment with shareholders.
• Financial statements: Income statement (profitability), balance sheet (assets/liabilities), cash-flow statement (operating cash flow, capex, free cash flow).
• Valuation methods: Comps (P/E, EV/EBITDA), P/S for immature profits, and discounted cash flow (DCF) for intrinsic value estimates.

Key financial ratios and what they indicate

• P/E (Price-to-Earnings): Price divided by EPS; higher can imply growth expectations, lower can indicate value or risk.
• PEG (P/E to Growth): P/E divided by earnings growth rate; values near 1 suggest valuation roughly aligned to growth.
• ROE (Return on Equity): Net income / shareholders' equity; measures profitability on equity capital.
• ROIC (Return on Invested Capital): NOPAT / invested capital; shows how well a company turns capital into returns.
• Profit margins (gross, operating, net): Indicate pricing power and cost structure efficiency.
• Current ratio: Current assets / current liabilities; liquidity measure for short-term obligations.
• Debt/EBITDA: Leverage metric; higher values imply more financial risk.
• Free cash flow yield: FCF / market cap; shows cash return relative to valuation.

These ratios are indicators, not answers. Use them together and in trend context.

Reading filings and regulatory disclosures

SEC filings (10-Q, 10-K), proxy statements, and MD&A are primary sources for company facts.

• 10-K (annual) and 10-Q (quarterly): Review business description, risk factors, audited financials, segment details, and note disclosures.
• MD&A (Management Discussion & Analysis): Management’s view on results, drivers, and outlook — watch for optimistic language vs facts.
• Proxy statements: Executive compensation, related-party transactions, and governance matters.

Practical steps: Search EDGAR for filings, read risk factors for material issues, and compare footnotes across periods for accounting changes. Poor disclosure quality or repeated auditor notes are red flags.

Technical analysis and timing

Price charts and technical indicators help with entry and exit timing, especially for shorter-term trades.

Common technical concepts:

• Trend analysis: Identify uptrends, downtrends, and ranges using higher highs/lows and moving averages.
• Support/resistance: Price levels where supply/demand have historically changed.
• Volume: Confirms price moves; rising volume on breakout is a positive sign.
• Moving averages (50-day, 200-day): Used for trend filters and crossovers.
• Momentum indicators (RSI, MACD): Measure overbought/oversold conditions and momentum shifts.

Combining fundamentals and technicals

A practical approach is to use fundamentals to pick candidates and technicals to time entries and manage risk. For example, select a fundamentally attractive growth stock but enter after it clears a technical resistance or on a pullback near a moving-average support.

Qualitative assessment

Qualitative factors often determine whether a company can convert advantage into value. Consider:

• Management track record: Execution on strategy, capital allocation discipline, and communication.
• Corporate governance: Board independence, shareholder rights, and transparency.
• Competitive moat: Brand, network effects, patents, regulatory barriers.
• Regulatory and macro risks: Industry-specific rules, geopolitical exposure, and supply-chain concentration.
• Customer and supplier concentration: Heavy dependence on a few customers or suppliers increases risk.

Document qualitative judgments and seek corroboration in filings, interviews, and industry reports.

Primary research and channel checks

Professional investors supplement public data with primary research. Methods you can apply:

• Store and site visits: For consumer businesses, visit stores or test products to assess demand.
• Speak with suppliers or customers: Trade references can reveal execution quality and demand trends.
• Industry sources and trade publications: Subscribe to sector newsletters and supplier reports.
• Management and investor-relations calls: Ask focused questions and review Q&A transcripts.

Primary research helps validate assumptions you made during screening and fundamental analysis.

Research tools and reputable sources

Useful tools help streamline the workflow when you learn how to find good stocks.

• Broker research & screeners: Charles Schwab, TD, Saxo, CommSec offer robust tools and education.
• Independent research: Motley Fool, Investopedia, Investor’s Business Daily (IBD) for investment education and ideas.
• Regulatory resources: FINRA guidance and SEC EDGAR filings for primary company documents.
• Data and charting platforms: TradingView, Stock Rover for screening, backtesting, and charts.

When using third-party content, verify underlying data in filings and note subscription limitations.

Evaluating analyst reports and ratings

Sell-side and buy-side reports summarize assumptions that drive ratings. When reading them:

• Identify key assumptions: Revenue growth, margin expansion, terminal multiples.
• Check conflicts of interest: Underwriters or institutional relationships can bias reports.
• Use consensus cautiously: A rating is a data point, not a recommendation. Build your own model.

Analyst coverage is useful for perspective and spotting risks you may miss, but do not rely on ratings alone.

Risk management and portfolio construction

Finding a single good stock is different than sizing it appropriately within a portfolio. Follow risk control principles:

• Diversification: Combine uncorrelated exposures and avoid overconcentration in sectors or themes.
• Position sizing: Limit any single-stock bet to a pre-defined percentage of portfolio value depending on conviction and volatility.
• Stop-loss and exit rules: Predefine loss limits or review triggers (fundamental deterioration, valuation change, or technical breakdown).
• Correlation management: Understand how new positions interact with existing holdings (sector and factor overlaps).
• Combine with core holdings: Hold core ETFs or blue-chip positions to stabilize returns while pursuing ideas.

Risk management is a discipline that preserves optionality and prevents emotional mistakes.

Execution and trade management

Execution matters. Practical considerations:

• Order types: Use limit orders to control entry price; market orders are for urgent execution but can incur slippage.
• Slippage and liquidity: Larger trade sizes in less-liquid small caps increase market impact.
• Commissions and fees: Use low-cost brokers and account for fees in short-term strategies.
• Tax-aware execution: Consider tax lots, wash-sale rules, and holding period implications for taxable accounts.
• Scaling: Add to winning positions or scale into entries over time (dollar-cost averaging or barbell approaches).

For trade execution, consider trusted platforms. When discussing execution in this guide, Bitget is recommended as the primary exchange option for investors seeking a modern, user-friendly interface and integrated wallet solutions (Bitget Wallet) to manage assets and orders.

Monitoring, review and ongoing due diligence

Stocks change; so should your monitoring.

• Set watchlists and alerts: Price, volume, earnings date, guidance changes, and regulatory filings.
• Key events to monitor: Quarterly earnings, guidance revisions, M&A, management changes, and industry-shifting news.
• Periodic review cadence: Quarterly for active positions; semi‑annual for long-term holdings.
• When to add/trim/sell: Add on improving fundamentals or discounted opportunities; trim to manage concentration or when the investment thesis degrades.

Keep a research journal that records entry thesis, price, position size, and exit conditions. Review outcomes to learn from mistakes and successes.

Behavioral pitfalls and common mistakes

Human biases cause many avoidable errors when learning how to find good stocks:

• Confirmation bias: Seeking information that supports your view; counter by actively searching for disconfirming evidence.
• Disposition effect: Selling winners too early and holding losers too long; enforce rules to counteract this.
• Recency bias: Overweighting recent events; use long-term data to contextualize moves.
• Overtrading and churn: High turnover often reduces net returns after fees and taxes.

Use checklist-driven decisions and predefined rules to limit emotional choices.

Special topics and variations

Different processes apply for specific approaches:

• Dividend investing: Emphasize payout ratio, free cash flow, and dividend coverage.
• Earnings-season trades: Focus on implied volatility, options pricing, and short-term risk management.
• IPOs and high-growth small caps: Place more emphasis on insider ownership, lockup expirations, and business model validation.
• Retirement accounts (401(k)/IRA): As of 2025-12-31, reporting highlights that claiming employer matches, minimizing fees, and considering Roth options can materially affect outcomes (source: Investopedia). Tailor stock selection and ETF choices to account types and retirement goals.

Practical checklist / workflow (step-by-step)

A concise workflow to act on ideas:

1. Define your goal: time horizon, risk tolerance, and allocation plan.
2. Generate ideas: Themes, screens, news, and watchlists.
3. Screen & shortlist: Apply quantitative filters to narrow candidates.
4. Fundamental review: Business model, financials, management, valuation.
5. Qualitative & primary research: Channel checks, filings, and industry checks.
6. Technical timing: Identify buy zones and initial position size.
7. Execute: Place limit orders, confirm fills, and log the trade.
8. Monitor & review: Track events and revisit thesis quarterly.

Repeat and refine the checklist for continuous improvement.

Glossary of common terms

• Market cap: Total value of outstanding shares (price × shares).
• EPS (Earnings per Share): Net income divided by shares outstanding.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization; proxy for operating cash flow.
• ROIC: Return on Invested Capital; measures capital efficiency.
• P/E: Price-to-Earnings ratio.
• DCF: Discounted Cash Flow; a valuation model projecting future cash flows.
• Buy zone: A technical price area where an investor plans to initiate a position.
• Free cash flow: Cash generated after capital expenditures.

Sample resources and further reading

• Broker learning centers: Charles Schwab, TD educational hubs, Saxo, CommSec.
• Investor education: Investopedia, The Motley Fool, IBD for fundamental and tactical content.
• Regulatory and filings: SEC EDGAR and FINRA investor guidance.
• Data platforms: TradingView for charting; Stock Rover for screening and research.

As of 2025-12-31, several articles underscored practical retirement planning principles (claim workplace 401(k) match, minimize fees, and consider Roth options) and sector-specific developments like GLP-1 drug approvals that can swiftly reshape pharma valuations (sources: Investopedia; The Motley Fool).

References and attribution

This guide synthesizes practices described in broker educational material (Schwab, TD, Saxo, CommSec), independent investor education (Investopedia, The Motley Fool, IBD), and regulator guidance (SEC EDGAR, FINRA). Market- and sector-specific examples referenced above are drawn from recent reporting and public company disclosures. As of 2025-12-31, reported indicators included the Buffett indicator near 225% (market-cap-to-GDP) and sector headlines on GLP-1 drug approvals; readers should verify current metrics in primary filings and reputable news sources before acting.

Practical templates (Appendix)

Below are simple templates you can copy into your research notes.

Final notes and call to action

Learning how to find good stocks is a repeatable skill built from clear goals, disciplined screening, rigorous fundamentals, pragmatic technical timing, and consistent risk management. Start by defining your criteria, set up screens and watchlists, and document each trade’s thesis and outcome. For trade execution and asset custody, consider modern platforms that integrate research and wallet features — Bitget provides user-friendly execution and Bitget Wallet for asset management. Explore Bitget tools to implement your process and keep refining your system.

Further exploration: apply the checklist to one idea this month — screen, research, and document before making any trade.