How to pick promising stocks amidst bad news

At Value Research Stock Advisor, we bring to you outstanding stocks that you can hold for the long term. But outstanding companies generally trade at high valuations. In the normal course of events, you are not likely to get them at a reasonable price. There are times though when you can, as happens when these companies hit a speed bump. These speed bumps often come with bad news. Bad news can take the form of disruption of production (raw-material constraints, labour unrest, other supply issues), fall in demand (cyclicality, price inflation, changing trend) or other factors (external action, lawsuit, change in policy, etc). Why look for bad news? Looking for bad news can be very profitable. The only time you can get your hands on outstanding companies at reasonable prices is when they are down on bad news. It is not uncommon for prices to go down by 50 per cent or more. At Value Research Stock Advisor, here's the process that we use to spot opportunities amidst gloom: Keep your eyes open for bad news: Bad news is good news for stock pickers. Where do you look for bad news? Your first stop is business papers. That's your hunting ground. Would you invest in the company at all? The first thing to ask is if you would buy the company at all. You only want to invest in outstanding businesses. That way, even if you need to hold the stock for a long time - a situation that occurs fairly often - you can sleep peacefully. Look for stable or growing businesses with high returns on capital, little to no debt, and those that clear the following tests: C-Score (for any creative accounting), F-Score (for financial health) and Z-Score (for any likelihood of bankruptcy). If any company fails to clear these preliminary quality tests, it is a good idea to drop it from consideration at this stage itself. All this data is available on the Value Research Stock Advisor website. Stop if any deve

This article was originally published on March 17, 2020.