Investing in an individual stock can be very profitable and there are many strategies to choose from. It's difficult to pick which companies will soar to new heights and which ones will actually languish or take a dive into the basement, but one thing is sure, none of them are foolproof. Some common strategies are value investing, growth investing, income investing, and Dogs of the Dow. A stock screener can be very useful for picking stocks that adhere to a particular strategy's criteria.
Value Investing is basically dredging the bottom of the barrel for the stock of companies that the investor believes are undervalued. Different investors have different ways to determine a stocks intrinsic value (its true value) for a comparison to the current price. What it all amounts to is trying to buy low and eventually sell high. Many of these companies could be distressed experiencing some temporary one-time problems, such as, negative news releases, or regulatory or reporting difficulties with the Securities and Exchange Commission (SEC). Whatever the reason happens to be, the gist of this strategy is to try to cash in on the woes of a troubled company with hopes that its fortunes will take a turn for the better.
High-Growth Investing is picking stocks that are flying high based on market expectations that it will just continue to rise. These kinds of stocks can deliver high returns on an investment as they outpace the rest of the market, but can also fall the farthest if some expected events fail to materialize as anticipated, or not at all. Imagine a company's stock riding high on the wave of the recent release of a new state-of-the-art product. Then very soon after that a competitor releases a product that makes theirs obsolete and they're left trying to find some way to regain their lost share of the market. The stock price falls. Something less dramatic would be a quarterly earnings report that fizzled compared to expectations.
Income Investing utilizes methods that help an investor find stocks that pay dividends to provide an income. These stocks tend to be less volatile than most others while still providing some degree of growth. Payout ratios using the actual cash available for paying dividends like funds from operations (FFO) or free cash flow (FCF) can vary from 20% to as high as 80%.
Dogs of the Dow is fairly uncomplicated and has proven to be successful since 1972. An investor just buys 10 of the highest dividend paying stocks from the Dow Jones Industrial Average and adjusts his portfolio each year to maintain the selection. Something to watch for is that so many people chasing just a few stocks can affect their prices.