An investor can use a number of criteria when determining a sector from which to select prospective stocks. However, it is important to do your own sector research to avoid becoming trapped by "professionals" who have vested interests in the sector they are promoting. So, ask yourself, is the stock in a sector that you think will do well? What are your reasons for thinking this? Answer those questions with careful research before selecting stocks within the sector for prospective investment.



P/E (profits/earning) ratios are most helpful as a prospective tool when comparing stocks within the same sector. Stocks competing within the same sector have similar expenses and expectations. With the P/E ratio the general rule of thumb is the lower the ratio the sooner stock prices are expected to rise. The P/E ratio represents the stock valuation of the company.

Now that you've selected some companies you wish to research further, you should be able to answer the following questions:

How has the company performed so far? Is the company growing regularly, from year to year?

How much cash does the company have available? Having cash available details the company's ability to pay its bills and generally can determine how well managed the company is. Look at financial statements that are required by law to be filed with the SEC.

Look at the volatility of the share price. Have there been wild fluctuations? Compare charts over different periods.

Finally, determine if the prospective company is geared for quick gains or as a long-term investment. Answering this question may have to do with the type of investor you are personally.

Once you've done the research you should be able to determine why you want to select a stock for investment. You can invest with confidence, knowing that you have the research to back up your prospects. The better-informed investor makes better decisions.