Stock Tips
There is no shortage of people offering stock tips. It can be your uncle, your barber or your friends. These stocks tip providers say it’s a “can’t lose” opportunity that is not to be missed. More often than not, these hot tips tend to be money losers. Many of these “opportunity of a life time” plays have no solid investment foundation. They usually are a result of wishful thinking, bad information and even fraud.

How To Evaluate Stock Tips
The worst thing an individual can do with a stock tip is act on it before doing the proper research. The risk is the investor can end up losing all the money invested on the stock. A good stock investment is where the downside risks are low and the probability of upside gain is high. It’s your hard earned money that you’re dealing with. Here are some points to consider:

How long has the company been in business?
You received a tip about an up and coming company will take significant market share away from its competitors. Before entering your order to snap up shares, find out how long the company has been in operation. The more experienced and prudent investor would like to see a company with a track record of ideally five years. This gives sufficient information to the investor to evaluate the company management’s effort in building shareholder value. Are they growing sales and earnings? Are they gaining market share from their competitors? Are they properly managing the company’s finances to fund future expansion? Does the company have competitive products and services?

Does the company have sales and profit?
You received a tip from your buddy about the company that’s going to hit it big. It is destined to be the next major corporation. Before rushing in to put in that buy order, consider this. A telling sign of a company’s success is their sales and profit. For the share price to appreciate, they need to consistently build on their revenue and earnings. The company’s offerings and the degree of satisfaction of their clients indicate whether sales growth can be maintained or not.

What’s the company’s track record in commercializing its technology?
You saw in the business news headlines that a tech company developed new technology that can revolutionize how things are done. The reality is that great technology does not always translate to huge profits. These companies’ past record for profitably exploiting their technologies or drug discoveries needs to be scrutinized. In the end, it is profits and the potential for more profits that drives up the value of the company. It’s usually the company with the best business model for successfully exploiting technologies that are beneficial for stock investors.

Which jurisdiction does the company operate in?
An exploration company announced a major oil deposit discovery in one of their foreign activities. Whether this corporation can sufficiently profit from this find depends on their relationship with the appropriate government, their laws regarding corporate rights and how much of the profit is the company allowed to take out of the country. In many emerging countries, corporations face risks that governments can all of the sudden expropriate their assets.

Who provided the tip?
We are truly in the information age. Today’s investor gets bombarded with stock tips from friends, family, strangers, telephone solicitations and the Internet. The challenge for the investor is who to trust. To safeguard themselves from any financial pitfalls, the investor should trust no one. The proper research must be done on a company in order to be able to make the right investment decision. Stock tips can be a great source to find interesting stock investments. It’s up to the investor to do the legwork to determine whether the company is worth buying or not. Caution should always be exercised regardless of the source of the stock tip. It’s your hard earned money being put on the line.

The company shares can’t go any lower
You have seen this one before. The shares of the company have plummeted from its historically high levels. They are now currently trading at fractions of where they were before. The first reaction is to start buying shares of these companies under the premise it can’t go any lower as your stockbroker claimed. Before entering that buy order, there are many points to look over. Company shares usually drop for a good reason. Sales and profits are falling due to uncompetitive offerings or incompetent management. The level of debt is too high, putting the company at risk of bankruptcy. There are situations where the company is indeed a valid turnaround, creating a buying opportunity. New management is put in place. The debt problem has been dealt with. The company starts generating profits.

The company will be bought out at a premium
There is a rumor circulating that the company is a takeover target. You figure a buy order should be quickly entered before the share price goes any higher. Not every rumor turns out to be true. The share price drops accordingly if the buy out speculation turns out to be false. The shares of the corporation should be bought on its operating merits. The company is increasing sales and profits, has a healthy balance sheet and the outlook is still promising. If a corporation does a buy out for another company at a premium price, it’s usually for a well run company.