How to Identify High Profit Stocks for 2023

The Indian stock market has been volatile this year. After peaking in October 2021, the benchmark indices have failed to hit a new all-time high.

The recent correction has rattled the nerves of many investors. They are trying to figure out when the stock market will recover. They want to know when the next bull market will begin.

The change in market sentiment has caused investors to act in different ways.

Some investors are considering buying stocks in a big way. Some have already taken the plunge. Others are cautious and buying stocks selectively and in small amounts. Yet others are keen to invest only if the markets correct some more.

Most investors who are either buying stocks now or are thinking of doing so in the near future, have a long-term horizon. This is a good thing. It's the first step to investing successfully in this market.

Unless there is a quick and strong market recovery, short-term investors are unlikely to make a lot of money. Thus being a long-term investor is the way to go.

But of that's just the first step. You will also need to identify the best stocks.

If you're looking for the best stocks for 2023 and beyond, you will need to diligently follow a solid process to find them. And you will also need buy them at reasonable valuations.

In this article we will look at the process you should follow to identify high profit stocks for 2023.

Let's get started...

Debt

It's always a good idea to start with debt levels of the company you are considering.

Ideally the company should have very little debt or should be debt free. Many fundamentally strong stocks have zero debt.

Check out the list of debt free companies.

Also it's a good idea to look for companies that are actively reducing their debt. While they may have some debt today, they are unlikely to be badly affected by rising interest rates.

Here's a list of the top companies reducing debt.

Dividends

Next, you should check the dividend payout.

The fundamentally strongest companies have rock solid cash flows. They often share this cash with investors as dividends. The best companies usually have a long track record of dividend payments.

In a stock market downturn, dividend paying stocks are in high demand as investors prefer the safety of the cash flow that dividends provide over capital gains.

These stocks can also provide good dividend yields during a market crash. This is because they tend to fall initially along with the rest of the market. But as soon as their yields become attractive enough, investors jump in and buy them.

This means high dividend paying stocks have an in-built stop loss.

Check out the companies with the highest dividend payouts and the highest dividend yield stocks.

There are also excellent companies that raise their dividends every year. In these stocks you get the benefit of capital appreciation as well as rising dividends.

They are called dividend growth stocks. Check out the list of dividend growth stocks.

If you're looking for fundamentally strong dividend stocks with good growth, check out the 10 biggest dividend paying midcap stocks.

Growth

Companies that maintain good sales and profit growth during a stock market downturn as always in demand. Check for good growth in topline and bottomline. The higher the better.

The market knows these stocks are essentially getting cheaper. This is because high growth increases per share earnings at a fast pace. This combined with a falling market makes these stocks attractively valued. At a certain point, deep-pocketed invests start buying these stocks.

In fast growing stocks get to this point sooner than slow growing stocks. Unfortunately, these stocks tend to be overvalued at the start of the correction, so they more downside.

It's a waiting game with high growth stocks. If you invest too soon you may end up buying the stock before its valuation has corrected sufficiently.

But if you are patient, the stock market will present you with a golden opportunity to buy these stocks at a great price.

Check out the list of fastest growing companies as well as the top growth stocks in the market.

Past Track Record

While no investor makes profits in the past, it's still important to look at the past as a guide.

If a stock has been a multibagger in the past, it's worth checking out if it was driven by fundamental reasons or by speculation.

If the reason was strong fundamentals, and those fundamentals are still intact, you could have a multibagger stock on your hands.

Check out this list of multibagger stocks.

Return on Equity

The return on equity is one of the best measures of a quality company. If you rigorously filter out low ROE stocks, you will get a list of stocks with high ROE.

High return on equity along with low debt is a great combination to focus on when looking for stocks with the best fundamentals.

All great long-term stocks have good ROE. Just be sure to use it along with metrics like high growth and low debt.

You may have heard of 20-20-20 stocks. These are an elite group of stocks with minimum 20% sales growth, 20% profit margin, and 20% ROE. Check out the list of 20-20-20 stocks.

With this checklist you are already ahead of 90% of investors in the stock market. It won't take you long to identify the best stocks to put in your watchlist for 2023.

Happy investing!

 

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...