you’ll also find stocks we deemed to be very capable runners- up, companies that could be equally rewarding in the months ahead. As we divulge the names of the eight stocks, we’ll walk you through the screening process and some of our reasoning. That way, if you return to the market at a later date, you’ll be able to use the very same logic.
Before we launch into the screens, two points bear repeating. Whether it’s your first time buying shares, or you’re looking for the latest addition to your bundle of investments, you should aim to find a stock you can hold on to at least two years–and probably more than that. We also recommend that your first stake in the stock market be made by buying into one or more stock mutual funds. Investing in one to three mutual funds spreads your money across many different stocks in a variety of economic sectors, essentially cushioning you from a lot of the spills that can wipe away a major part of your portfolio at any given time.
TAKING STOCK OF THE MARKET
The Dow Jones Industrial Average, the benchmark almost everyone uses to take the market’s pulse, has been rather volatile so far this year, up 100 or 200 points one day and down as much the next. That’s likely to make more than a few of us jittery, no doubt. We’d still recommend what might seem like an aggressive stance. For one, trying to time the market is an exercise in futility; ultimately having money invested for the long-term should be your primary goal since it is the surest way to reap returns. After all, as expert money managers said at the BLACK ENTERPRISE Investment Roundtable (“…And What For An Encore?” April 1997), no matter what the market’s doing, there’s still money to be made if you choose the right stocks. And, as you are aware, stocks are the place to be for the long haul, proof coming in from a robust 15% average annual gain in the S&P 500 since 1970.
It’s still a good idea to size up the overall stock market to check on how much company shares fetch under current economic conditions. As a calculation based on a large group of stocks, an index like the S&P 500, a composite based on the performance of the country’s largest companies, is a good benchmark to review. First, a look at the average price-to- earnings ratio (or P/E) for the index tells us how much value the stock market currently puts on a company’s profits. The ratio is calculated by dividing the price of a stock or level of an index by the earnings per share. Generally, institutional and individual investors are willing to pay a certain premium to lock in on a corporation’s profits, tying a company’s stock price to a multiple based on its earnings per share. As of this writing in mid-May, the S&P 500 was trading at 20 times projected 1997 earnings. Historically, the S&P