Increase in Assets as Debts Are Stable or Decreasing
Increasing assets while decreasing debts (or at least stabilizing them) is key to growing the book value of a company. Book value refers to the company's value as it appears on a balance sheet — equal to total assets minus liabilities. Book value usually differs significantly from market value (or market capitalization) because market value is based on supply and demand of the company's stock in the marketplace. Rising book value has a positive impact on market value, which, in turn, tends to drive the stock price up as well. Therefore, it pays to watch book value. Rising book value can be accomplished in one of two basic ways: debt stays level as assets rise and assets stay level as debts decline. When looking at a company's assets and debts, the best scenario you can find is assets rising and debts declining.

Positive Publicity for Industry
When the media report that a company is doing well financially or that its products and services are being well received by both the media and the market, that news lets you know that this company's stock may be going places. This positive publicity ties in nicely with the other point made in this chapter about consumer acceptance for the company's products and services.

Positive press and consumer acceptance are important because they mean that the company is doing what's necessary to please its customers. The positive media coverage also may attract new customers to the company. Gaining customers means more sales and more earnings, which translates into a higher price for the stock.

Heavy Insider or Corporate Buying
Company insiders (such as the CEO and the treasurer) know better than anyone else about the health of a company. If insiders are buying stock by the boatload, then these purchases are certainly a positive sign for investors. If individuals such as the CEO or the treasurer are buying stocks for their personal portfolios, you can assume that they think the stock is a good investment. When the corporation buys its own stock, it's usually considered a positive move. The corporation may see its own stock as a good investment. Additionally, corporate stock buying reduces the number of shares available in the market, potentially pushing the stock price higher.

More Attention from Analysts
Analyze a stock according to its own merits first. Then watch the stock's price as more and more analysts start to direct the public's attention to it. In a sense, they're promoting your stock, an action that tends to boost the stock's price. Don't let the analyst's views sway you, though, because analysts may tout a stock for unsavory reasons. Perhaps the company is a client of the brokerage firm, or maybe the brokerage firm owns a lot of the company's shares and wants to unload them.

Rumors of Takeover Bids
Rumors of a buyout are always welcome, but the bottom line is that it should alert you to a good value. Regardless of whether the buyout rumor proves true, you shouldn't even consider the stock if it isn't worth owning on its own merits. If it's a good stock, the rumor tends to increase its visibility so that the chances of a takeover do, in fact, increase. Rumor or not, the attention does tend to increase the stock's price.

Praise from Consumer Groups
A company is only as good as the profit it generates. The profit it generates is only as good as the revenues that the company generates. The revenues are based on whether customers are accepting (and shelling out money for) the company's products or services. Therefore, if what the company offers is popular with consumers, it bodes well for profits and consequently higher stock prices.

When you're ready to invest in stocks, look for high consumer satisfaction. Review consumer publications and Web sites and read the surveys and con¬sumer feedback information. Good publicity and word-of-mouth consumer satisfaction are things that investors should be aware of. Stock-picking expert Peter Lynch (formerly of Fidelity Magellan fund fame) sees this popularity with consumers as very valuable stock-picking information. He likes to see what consumers buy because that's where the company's success starts.

Strong or Improving Bond Rating
The creditworthiness of a company is a critical factor in determining the company's strength. Most people presume that the bond rating is primarily beneficial for bond investors, and they're correct. However, because the bond rating is assigned according to the company's ability to pay back the bond plus interest, it stands to reason that a strong bond rating (usually a rating of AAA or AA) indicates that the company is financially strong.

Powerful Demographics
If you know that a company generates lots of profit from the teenage market and you find out that the teenage market is going to expand by 10 percent per year for the foreseeable future, what would you do? Exactly — you'd buy the stock of that company. If a company has strong fundamentals and appealing products or services and its market is expanding, that company has a winning combination.

Low p/e Relative to Industry or Market
The price to earnings (P/E) ratio is a critical number for investors. Value investors in particular scrutinize it. Because the stock price's future ability to rise is ultimately tied to the company's earnings (profits), you want to know that you're not paying too much for the stock. A low P/E ratio (low relative to some standard, such as the industry's average or the average P/E for the S&P 500) is generally considered safe, and the stock is a potential bargain.

If the industry's P/E ratio is 20 and you're looking at a stock that has a P/E of 15, all things being equal, that's great. The company has room for growth, and you have a good value.

Source:
Paul Mladjenovic, Stock Investing for Dummies, Wiley Publishing. You can obtain this excellent book here