Many investors simply look for stocks with low price to earnings ratios. These stocks are selling for less than their profits would seem to dictate. The market may have good reasons this. On the other hand the market may have overlooked the stock. Low cap stocks and penny stocks are often profitable investing opportunities. Many stock analysts follow big companies like ExxonMobil, Microsoft, and Apple. Many small companies are not “seen” by the market in general because few or no analysts follow their financials, product development, and plans for the future. The first of our best stock investing tips is to find a small stock with a low price to earnings ratio.

The second of our best stock investing tips is that many large companies fall out of favor with the market. Their cash flow is poor and management cannot seem to make efficient use of the talent, cash, and other assets the company possesses. Here are two examples. Years ago Disney underwent a reshuffling of its board of directors, brought in Michael Eisner, and saw a growth phase for the stock. The other is the recent purchase of the Motorola cellphone business by Google. Motorola had a wealth of patents and was not monetizing that asset. Anyone who invested in either of these companies before change occurred made money. Sometimes picking new winners from fallen companies works out just fine.

The third of our best stock investing tips is to look at intrinsic stock value and margin of safety for stocks you are considering to buy, to sell, to sell short, or to trade options on. This is basic to how to invest in stocks. Intrinsic stock value is a company’s forward looking income stream. Is a company positioned to take advantage of an upswing in the economy? Is it positioned to take advantage of new technology? Does the company have a new technology which promises wealth in future years? A margin of safety is just what it sounds like. A company with lots of cash, lots of property and no mortgages, or ownership in other companies with promise has a margin of safety to rely on in tough economic times. Such stocks hang in there when the economy weakens and have the reserves to buy out competitors, fund R&D, and take advantage of a recovering economy. On the other hand such stocks can also be very profitable when purchased early if, like Motorola, they do not take advantage of their assets and become buyout targets.

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