Every twist and turn in the stock market holds the potential for both gains and losses. For investors seeking long-term success, the ability to identify stocks with enduring potential is crucial.
While predicting the future with absolute certainty is impossible, there are certain signs that may indicate a stock is worthy of a long-term commitment. In this article, we will look at a few key indicators that investors can use when evaluating the long-term viability of a stock.
#1 Consistent Revenue And Earnings Growth
One of the first indicators of a stock’s long-term potential lies in its ability to generate consistent revenue and earnings growth. Companies with a history of increasing sales and profits over several years often demonstrate resilience in the face of economic downturns and market fluctuations.
According to Yahoo Finance, Verizon Communications (VZ) has shown great consistency in the stock market. VZ demonstrates resilience in its latest earnings report with a $33.34 billion revenue and a marginal 2.8 percent decrease in net income.
The company’s operational stability is evident through a 4.3 percent increase in operating expenses, indicating that strategic investments are being made. All these details make VZ a good long-term investment with guaranteed returns.
Investors also need to scrutinize financial statements to identify patterns of revenue and earnings growth. It’s not merely about one stellar year. Rather, it’s the trajectory over multiple years that reveals a company’s capacity to thrive in various market conditions. This scrutinization will also allow buyers or traders to identify and avoid buying overbought stocks.
According to ValueTrend Wealth Management, an overbought stock is overvalued in nature. That means it has a bearish outlook and there will be a pullback on the stock soon. Because of that, the stock price will fall the moment the investors start selling.
Many investors end up buying overbought stocks without doing a thorough technical analysis of the company’s revenue and earnings growth. As a result, their long-term investment plans go to waste since these stocks tend to lose their value over time.
#2 Strong Competitive Advantage
Sustainable success in the stock market often hinges on a company’s ability to maintain a strong competitive advantage. Whether through technological innovation, brand strength, cost leadership, or exclusive partnerships, a competitive edge sets a company apart from its peers.
Investors should analyze a company’s market position and evaluate the durability of its competitive advantage. A robust competitive moat not only safeguards a company’s market share but also allows it to weather industry challenges more effectively.
According to Morningstar, some popular undervalued, high-quality stocks with competitive advantages include Alphabet, Meta, Adobe, Microsoft, Pfizer PFE, and BlackRock.
These stocks are good for long-term investment as the products and services they offer are extremely difficult to compete against. Dethroning them from the top of the stock market is impossible right now, at least till a worthy competitor shows up in the market.
#3 Prudent Management And Governance
Behind every successful company is a team of skilled and responsible leaders. Prudent management and effective governance are essential components of a stock’s long-term viability.
Investors should assess the track record of a company’s management, considering factors such as strategic decision-making, financial stewardship, and transparency.
A management team that adapts to changing market conditions and prioritizes long-term growth over short-term gains can guide the company through various economic climates. Scrutinizing management’s communication with shareholders and responsiveness to challenges provides valuable insights into the company’s overall health and its potential as a long-term investment.
#4 Innovative Research And Development (R&D) Practices
Innovation is the lifeblood of long-term success in today’s rapidly evolving business landscape. Companies that invest in R&D can maintain a competitive edge and capitalize on new opportunities.
Through proper technical analysis, buyers or investors should examine a company’s commitment to R&D by reviewing its investment in innovation. They also need to understand the company’s potential for future breakthroughs.
According to Statista, companies like Meta, Alphabet, and Apple had the highest R&D spending worldwide in 2022. These three, along with two other companies, spent over $73 billion in R&D last year. That’s why they’re doing so well in the stock market at present, as evident in the second discussion point of this article.
A robust R&D strategy is indicative of a company’s proactive approach to staying ahead in its industry. While not every innovation guarantees success, a consistent commitment to exploring new avenues can signal a company’s resilience and capacity for sustained growth.
In conclusion, investing in stocks with the intention of holding them for the long term requires a careful analysis of various factors. While the stock market remains inherently unpredictable, investors can increase their chances of success by looking out for the signs discussed above.
It’s essential for investors to conduct thorough research, diversify their portfolios, and remain vigilant in monitoring the performance of their investments. Doing all this will allow investors to navigate the complexities of the stock market and uncover successful long-term opportunities.