With the bull market entering its third consecutive year, investors are growing cautious about the returns of the investment market. Higher interest rates, surge in commodity prices and federal budget struggles are more than enough for the investors to remain watchful this year. As the global economic crisis continues to resound through the global investment markets, the financial analysts are of the opinion that tight credit markets, consistent economic uncertainty and reduced tolerance for risk will dominate the investment decisions taken by most investors this year. Here are some top investment trends of 2011 that will help you know the nooks and corners of the investment market and take an informed and measured step.

1. Investors will take a defensive step: Since this is the third year of bull markets, it’s high time that there is a definite transition in the investment market. As 2011 goes on, investors who had invested in stocks that have appreciated sharply are shifting into a more defensive stance, according to the opinion of some investment experts. While the investors are questioning the sustainability of the ever-increasing bull market, they are embracing the sectors where demand is always static. This strategy for 2011 will push a large number of investors towards energy, health care and utilities.
2. Stocks of large companies will be ‘in’: Historically, it has been always seen that when the investors become extra watchful regarding the stocks, the small and mid-sized companies have suffered. Comparatively, the stocks of the large sized companies fare better than them because the investors then prefer to remain with a larger company than tolerate the risks of investing in a small company.
3. Investment strategies will be based on evolving risks: The outlook of inflation is entirely different with the emerging and the developed markets. However, the investment experts are of the opinion that the wage and price inflation may stay in check in the US for the next two years with the continued surplus capacity of the US economy. There is low inflation in Europe and deflation in Japan. However, in China, India, Russia, inflation has risen sharply and the lawmaking authorities have started raising the interest rates to ease off the economic pressures.
4. Investors will review their reliance on equity risk premium: According to the valuable opinion of some investment analysts, the investors will review the role of equities on their investment portfolio since the after-effects of the global financial crisis. Only investing money in stocks of companies that have an exceptionally high growth rate will not be enough in 2011. They also have to concentrate on the diversification of their portfolio and consider whether investing in equity funds may benefit their investment portfolio.
5. Lift in oil company stocks: The price of oil in the last quarter of 2010 has been $90 a barrel. The last time oil finished with a strong value was in the year 2007 with $96 a barrel that skyrocketed to $145 a barrel by the second quarter of 2008. Unfortunately, the stock prices of the oil companies rarely surged in 2008. Since then the rising price of oil was not converted into the rising price of stocks. However, the financial analysts do not see the same thing happening this year. Therefore, the oil company stocks will preferably get a boost with the hike in the price of oil.
6. Investor’s flight to emerging markets: The emerging markets or the nations that are gradually becoming advanced are inviting investors as they’re experiencing rapid growth. India, Russia, China are some of the emerging markets and may also show GDP growth that will be two-times higher than that of USA. Experts predict that investors will look for more opportunities to invest in such markets.

Investors in 2011 will shift slowly from low risk investment to investments with higher yield but due caution has to be maintained within the industry in order to avoid the repetition of the same thing that most investors faced in the late 2000s. Investing in alternative energy and emerging markets will be among the top investment trends this New Year.

There are several suggested methods for using the PE ratio as a fundamental indicator in the value of a stock. One method is to find the average PE ratio across the stock industry. For example, if you are researching biotechnology companies, stock screening and research sites usually provide the industry average PE ratio. If the stock under research has a PE ratio lower than the average industry PE, it may signal a good buy.

Some investors use the PE ratio calculation with the forward looking earnings value. By dividing the stock price of one share by the future yearly earnings expectation, you can determine the forward looking PE Ratio. If the value is lower than the industry average, this can also strongly suggest the stock may be at a prime purchase point.  The reason is that the stock is discounted based on the future earnings, and if the stock hits its future earnings, its price should rise to the industry average, resulting in a healthy stock price appreciation.

Now that you know what the PE Ratio is and how it’s used, have fun searching through stocks to find which ones stick out as exceptional discount prices. Most stock screen sites and stock search pages allow you to search and sort by PE Ratio.

Please note that PE Ratio should not be the only indicator or piece of information used to make decisions on stock purchases. It is however one of the most fundamental indicators used by stock analysts when researching stocks, and should be used as one component when deciding which stocks are best to buy.

Other Articles:

Investing Basics
Building Wealth in your 20′s
High Dividend Investing
Dollar Cost Averaging

Once you have identified some stocks you are interested in, now you need to look more closely at them. The first thing you should do is write them down and leave enough room for the data that you are going to evaluate them on, Microsoft Excel also works great for this. The key things to look at are Dividends, P/E Ratios, Return on Equity, Stock Ratings, Debt, Earning, Insider Activity, and basic chart evaluations.

Dividends are payments that the company makes to the stockholder from its profits. The benefit of dividends is that regardless of what the market is doing you will get money from that stock in the form of cash payment. Dividends are paid out on a quarterly basis. When looking at dividends it is a good idea to see what the industry average is for that stock and compare. For dividend paying stocks, look for stocks with a dividend that is comparable to the industry average or above. If you would like to learn more about dividend investing, please read this article on High Dividend Investing.

P/E Ratio is the Price to Earning Ratio. It evaluates how good the stock price is and whether it is over or undervalued. For stocks with a P/E value that is higher than the average for the industry that means that investors are willing to pay more for that stock than others. Opposite holds true for low P/E values, investors are willing to pay less. There are many different philosophies on whether a company stock price is better if it is higher or lower than the average. Look at stocks that have a low P/E compared to the industry. If you buy stocks with a high P/E, you are paying a premium for investor opinion of the stock. Think of a low P/E as a stock on sale.

ROE is the Return on Equity. This is how the company uses your money that you have invested in their company through stock purchases to generate profits. In theory the higher the ROE is, the more easily the company can generate cash internally. It is a good idea to compare this number to the industry average as well. Look for companies with a higher ROE than the industry average.

Stock Ratings are a quick look at others opinions of the stock. There are many different ratings out there but the ones to look for evaluating stocks are the Motley Fool Caps Ratings and Analyst ratings. The Motley Fool website has a Caps Rating system which is a network of other investors who rate a stocks performance against the S&P based on a 5 star grading system. A five stars stock is expected to outperform the S&P, and a one star stock is expected to under perform. Look for four or five star stocks. Motley Fool also has a bunch of other information located on the stock page that is good data as well to look at but will not be addressed in this article. Analyst ratings can be found on many of the investing websites but for this article we will look at MSN Stock Scouter. The stockscouter rates stocks on a scale from 1-10, with 10 being the best, to determine the expected risk and return. Look for stocks that have at least seven in the rating systems. There is also more information available in the left navigator menu called Analyst Ratings. This tells whether according to the analysts surveyed is the stock a strong buy, buy, hold, sell, or strong sell. Obviously, you are looking for stocks that are a buy to a strong buy here.

Debt is another area that needs to be considered when evaluating a stock and given today’s credit constraints it maybe even more important. The thing you have to keep in mind with debt is that some industries carry more debt than others. It is important when looking at debt ratios that you compare them to the industry average. Look for stocks that are at or below the industry average for this part. Stay away from stocks that have debt that is higher than the industry average because the company may not be as stable as other in the industry.

Earning is one of the key things that analysts and investors look at when evaluating a company. The stock price usually follows earning. You should look at earning by comparing quarter-to-quarter and year-to-year. For example, you are looking at a retail stock that has high earning in the 4^th quarter and lower earning in the first quarter. It would not be good to look at the earning and think that the stock is going down. What you should look at is the previous years 4^th quarter to see if there was earning growth from that year to the current year. This is a better indicator or earning growth and a more reliable measure. Usually a company with negative earnings should be avoided.

Insider Activity is just another piece of the final decision. This information can be found on most financial websites and it tells whether the high level employees of a company are purchasing or selling their personal stock. Generally, if there is insider purchases than the employees think that the stock will go up. This is not a make or break piece of the decision just one other thing to look at.

Basic Chart Evaluations for a stock can tell you a lot about where the stock has been and where it maybe going. It is a good idea to look at a year, 5-year and 10-year chart of stock prices. Generally, you are looking for an upward trend to the stock price over the course of the company’s life. You can also look at a simple moving average of the stock price over a period. This is usually located under the technical indicators of the chart. This will tell you the trend of the stock. Set the averages at a 50-day average and a 20-day average. Where the lines cross, the stock is trending either up or down. This chart is showing that as of May 2009 this stock’s price is trending up so it would be a good time to buy.

After you have looked at all these indicators for your stocks that you have selected you can compare the results for each stock to make your decision on what to purchase. Remember you are looking for stocks with a dividend, low P/E, high ROE, good ratings, low or equal debt, positive earnings, maybe with some insider trading and a chart that shows growth in the stock price. Knowledge is power so; the more you learn the better decisions you make.

1. Pay attention to where consumers are shopping.  For example, go to your local mall and sit and people watch for 15 to 30 minutes.  Note which stores are frequently visited and which are not.  This will give you a general idea of what stores or companies are successful at attracting customers resulting in potential profit increases.
2. Notice the national news trends and top stories.  For example, when fuel prices hit record levels, there were thousands of news stories, articles, and specials on alternative energies such as solar and wind.  If you would have invested in the top solar companies during that time, you would have doubled or tripled your money. (Notice that the focus is not on the remarkable gains here, but rather the fact that this strategy can and is profitable.)
   
3. Read current issues of popular magazines and note the current clothing, entertainment, and lifestyle advertisements.  By connecting popular products to companies, you can generally find excellent investments that are not yet fully discovered by investors.
4. Cash in on housing trends.  Observe your local community and state for general housing trends.  If homes are selling rather quickly, and new neighborhoods are growing rapidly, find out which builders are profiting from the housing boom, and invest in those companies.  Alternatively, you can invest in REIT’s (Real Estate Investment Trusts) which generally have higher dividends and tend to sky rocket as housing prices trend upward.  If real estate is level or declining, it’s good to look for REIT’s that focus on apartment complexes or rentals only, as the rental market tends to be very positive when housing prices are in decline.

Following a few simple steps as noted above can help individual investors get great leads on potentially profitable stocks.

Mutual Fund Investing

Mutual Funds are great for beginners to start investing in the stock market with very little money.  The reason mutual funds are so beneficial to investors is because they help to diversify your money, and do not generally require large amounts of cash to purchase shares.

Mutual Funds are run by experienced financial managers that research, analyze and invest the mutual fund dollars into various securities including stocks and bonds.  When you purchase shares of a mutual fund, you are investing in all security holdings that mutual fund owns.  This automatically diversifies your investment dollars and reduces your overall risk.  Morningstar is a great website for researching, comparing, and searching for mutual funds that will meet your investment objectives.

Stock Management Sites

ShareBuilder is a stock management site that lets investors open an account and buy stocks in any dollar amount.  This way investors are not limited to stock share price, as exact amounts can be specified and invested.  This site also allows you to setup regular investment intervals such as weekly or monthly amounts you would like to invest if you desire.  You select which stocks, and they will automatically purchase the number of shares for you depending on what dollar amount you want to invest.  This is a great strategy for those new to investing as well as experienced investors looking for a simple way to purchase securities.

Share Laddering

Share laddering is when you purchase a small number of shares of a stock, and when the stock price appreciates, you sell enough shares to cover the profits, and purchase shares of another stock with that money.  For example, if you bought company XYZ at $10.00 a share, and purchased 10 shares, that would be $100.00 invested.  If XYP appreciates to $20.00 a share, you have doubled your money.  You would then sell 5 of your 10 shares (which equals your profit), and invest that $100.00 into a another stock.  This way you are using your profits to build equity into additional securities and also diversify your investment funds.

The above strategies are just a few simple methods which can be used by individual investors just starting out.   They are conservative strategies and help to diversify what funds you do have available for investing.

A high dividend yield stock is generally a stock that produces a dividend greater than 6%, or which falls within the top 10% of dividend stocks when searched and ordered by dividend percent.  The dividend percentage is determined by taking the annual dividend amount the company pays out, and dividing it by the stock price.  For example, if stock XYZ has a yearly dividend of $0.78, and it’s stock price is $10.00, the dividend yield is currently (0.78/10) = 7.8%.  Since this is higher than 6%, and money market funds generally pay out interest in the 4 – 6% range, this would be considered a high dividend stock.  It’s also worth noting that as the stock price declines, the dividend yield will increase.  This assumes the company will not lower their dividend pay out, which is why it is important to review the company financial balance sheet and EPS history verses future predictions.

There are several methods that can be used to search for high dividend stocks.  Many financial web sites contain stock screening features that include sorting and searching on a stock’s dividend.  The MSN Stock Search site is a very useful tool for searching and identifying high dividend stocks.  Another method is to use the local newspaper or Wall Street Journal to visibly search for high dividend payouts by scanning the dividend column.  Create a list of stocks symbols you have found, the current price, and dividend.  This will give you a starting point for doing further research to find stable companies that will continue to pay out hefty dividends for the long run.

Investing in financially stable high dividend stocks provides two benefits to the individual investors.

1. A quarterly income stream is established that can offset any decline in stock price during bear markets or short downturns
2. When stocks rebound from downturns or bear markets, quarterly dividends magnify the overall profit.  The quarterly dividend is paid out to shareholders in addition to the stock price appreciation.

High dividend investing is a stable and proven approach to establishing recurring income and offsetting loses during downturns in the stock market.  This makes high dividend stocks an essential addition to any individual investors portfolio.

Simply, dollar cost averaging means investing a fixed amount of money on a regular basis into an investment over a long period of time.  While the security price (stock or mutual fund price) is low, the amount you invest will buy more shares, and when the security price is high, the same dollar amount will purchase a lower number of shares.  The end result is a lower cost basis in turn producing a greater profit margin.

Next time you invest, instead of purchasing a large amount of shares, try purchasing a smaller amount over several transactions to reduce your risk,  lower your cost basis, and ultimately increase your profits!