When buying stocks, there are certain signs that should lead investors to move forward or step back. Researching investments is a form of due diligence that all investors should perform, even if there is a financial professional providing guidance.

Identification

Buying stocks provides investors with an equity share in a corporation. Investors who buy stocks place a bet that there will be future profits generated at a company and expect to share in those rewards. Ideally, an investor will buy into a stock at a low price and sell it for a profit.

Strategy

Value investing is a strategy that hunts solid companies that have demonstrated earnings and dividend growth, but whose stock price might be under pressure for some reason. The expectation is that since these are fundamentally sound companies, the stock price will recover eventually.

Features

Look for ongoing earnings growth in a company before buying a stock. Solid earnings are signs of a profitable company, and investors tend to share in those rewards. Profitable stocks not only tend to rise in price, but these companies often pay investors dividends out of earnings or profits, which is a benefit.

Top Stocks

Consider buying a stock with a large market capitalization, and avoid investing based on hype surrounding a stock's potential unless there is evidence of profitability. Often, it is beneficial to invest in leading companies, as these stocks lend stability and the potential for long-term growth to a portfolio.

Dividend Stocks

In a December 2009 article, CNBC host Jim Cramer recommends that investors purchase dividend-paying stocks. Cramer is in favor of dividend-paying stocks with a history of raising the payout, because these companies offer promise for greater returns in the form of cash dividend distributions on top of any stock market gains.

Source:

CNBC: Cramer: Buy These Three Dividend Winners

More Information:

The Motley Fool: The First Investing Strategy You Should Learn