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Today, investors have a seemingly endless supply of analyst research notes, industry analysis, earnings announcements and company reports at their fingertips -- all thanks to the Internet. Still, knowing how to choose rewarding stocks can be challenging. To help you avoid information overload, I've outlined below three straightforward ways for long-term investors to separate the winners from the losers.
1. Look beyond the numbers
Examining P/E ratios and carefully reviewing a company's quarterly earnings can be helpful in identifying the financial health of a business. However, for a bigger-picture view, investors should focus on the company behind the numbers. Does the company have a sustainable competitive advantage?
This could come in the form of visionary leadership, patent protection, or product innovation. Think of Starbucks CEO Howard Schultz. He took what was once one of many coffeeshops and turned it into an international brand that is now the face of a multibillion-dollar industry. Thanks to forward-thinking leadership, the coffeehouse chain currently owns and operates more than 17,000 stores in 55 countries.
A recognizable brand is another trait of winning stocks. Some of the strongest brands in the world include names that even a hermit would know, such as Apple (Nasdaq: AAPL ) and Coca-Cola. These companies command cult-like followings, which mean they can charge a premium for their products. So while earnings, book value, and other metrics are important, they often don't paint the whole picture.
2. Get the inside scoop
Tracking a stock's insider ownership is easier than most people realize. With the Motley Fool's free CAPS screening tool, investors can quickly search for stocks with high insider ownership. This feature is particularly useful because in addition to insider holdings data, you also get the collective wisdom of the Fool community via CAPS ratings.
For example, my recent screen for stocks with the highest insider ownership returned companies such as Clean Energy Fuels (Nasdaq: CLNE ) , with nearly 30% insider holdings, and Eagle Rock Energy Partners (Nasdaq: EROC,) at more than 43% insider ownership -- both of which also boast four- and five-star ratings, respectively, on CAPS.
Another easy way to find insider transaction info is on Morningstar.com. Simply type the company's ticker into the "Quote" field at the top of the page, and select "Insiders" from the company toolbar. High insider ownership has been linked to high shareholder returns, primarily because executives who have so-called "skin in the game" are more likely to have shareholders' best interests at heart.
When possible, try to look for stocks with at least 15% insider ownership, especially when the stocks in question have low institutional ownership.
3. Check past performance
Investing in stocks with a proven track record of steady earnings and reliable dividend payouts mean you won't lose sleep at night worrying about your investments. The S&P 500 Dividend Aristocrats is a great place to start. If you're not yet familiar with it, the group is comprised of stocks that have consistently raised dividend payouts every year for at least 20 years running. In the last year, the S&P 500 Dividend Aristocrats index has returned more than 19% to investors.
Some high-yield Dividend Aristocrats include familiar faces like Walgreen (NYSE: WAG ) and Procter & Gamble (NYSE: PG ) , which both have a dividend yield north of 3%. The pharmacy chain has increased its payout without interruption for the last 36 years. Meanwhile, Procter & Gamble has been steadily growing its dividend since 1957. With companies that have a rich history of shareholder returns, investors can rest assured they'll see future payouts.
Money in the bank
Discovering stocks worthy of your portfolio doesn't have to be a stressful process. Just remember the words of Peter Lynch: "A share is not a lottery ticket ... it's part ownership of a business." Investing in companies that create value for their customers and shareholders, and holding these stocks for the long haul, is the surest way to bag worthy returns.
Just look at the early investors in Apple. They recognized the innovative design of the Mac maker's products and visionary leadership of Steve Jobs, while many industry experts dismissed Apple as a passing phase. Today, Apple is the most valuable company in the world and a multibagger win for those investors who've held on over the years.
If you've missed out on the Apple rally up to this point, don't kick yourself just yet. The Fool's new research report covers every angle of Apple's investment thesis. The report also comes with a full year of timely market notifications to keep you up to date on the company. Click here to get your copy of the report now, while it's still available.