How to Find Long-Term Leading Stocks
There are countless methods for stock trading, but how can ordinary investors stay invincible? The answer is to embrace leading stocks. Leading stocks can be short-term or long-term, and long-term leading stocks are the easiest to grasp. Next, I will explain how to identify long-term leading stocks!
Why should we identify industry leaders? The reason is simple: industry leaders are the best-performing stocks in their sector. If even they don’t make money, it’s even less likely that you’ll profit from other stocks. So, rationally speaking, where should you place your bets?
I know many people avoid buying leading stocks because they fear high prices. However, high prices have their reasons. Additionally, precisely because most people fear high prices, many remain hesitant to enter the market—these are potential funds that could drive stock prices higher. Conversely, if everyone jumps in, who will keep pushing the price up? That’s when the peak may be near!
So, how can we identify leading stocks in the simplest way? We can approach it from two perspectives:
1. Technical Analysis
Leading stocks exhibit various patterns depending on the industry and the strategies of major investors. However, one constant is that leading stocks always outperform the broader market and their sector. Don’t underestimate this—most stocks merely follow the market, and only a few show extreme strength or weakness. If you check, you’ll find that daily top gainers usually make up only about 5% of the market, while the worst performers also account for 5%. The remaining 90% are average performers. Therefore, you can start by filtering stocks based on technical performance. Stocks that consistently outperform the market and their sector are likely driven by strong institutional participation, making them worth watching.
2. Fundamental Analysis
How do we pick leading stocks based on fundamentals? The simplest way is to look at net profit! This metric is chosen because it is quantifiable and ultimately reflects a company’s value. Another perspective: If even the industry leader isn’t profitable, other companies will struggle even more. Thus, net profit is a reliable indicator for identifying long-term industry leaders.
Step 1: Examine net profit. You can also use other metrics like Return on Equity (ROE), but the key is to focus on profitability. Consider whether the net profit is growing sustainably or how it compares to peers. The time frame shouldn’t be just one or two years—preferably three years or more, even five, to ensure stability.
Step 2: Analyze the reasons behind the company’s high profitability.
Step 3: Assess whether these reasons are sustainable. If all these factors are satisfactory, you can confidently conclude that this is likely an industry leader!
Of course, whether to buy depends on many other factors, such as valuation and timing.
