For stock traders, looking out for stocks to invest in becomes an art as well as a science. The way this is done depends on the strategy being followed by the stock trader themselves. One of the more common strategy used by many stock traders is the buy and hold method. It is characterized by buying stocks with the purpose of holding them for a considerable period of time.

Those who follow the buy and hold strategy believes that the market provides a relatively good rate of return for stocks at long periods despite the short periods of decline and volatility that they may experience. In order for stock traders to take advantage of this strategy, they need to know what indicators to look for when searching for good buy and hold stocks.

Price To Earning Ratio

Price to earnings ratio, more commonly known as the P/E ratio is simply calculated by dividing the stock price by the earnings per share that it makes. P/E ratio is usually used for comparisons to other stocks offered by companies in the same industry. It may help determine if stocks may be an attractive buy.

A stock with a higher P/E ratio than that of its competitors in the market may indicate that the stock may be overvalued as the investors may be paying more fro every dollar that the stock earns. However, if the P/E ratio of a certain stock may be lower than that of its market competitors, it may suggest that the stock may be undervalued.

Book Value Indicator

Book value is another useful indicator that investors may be able to check out to determine whether a stock may be overvalued or under priced. In simple terms, the book value of a company refers to its current worth if ever it stops doing business tomorrow and undergoes liquidation. One way to use it is through determining the company’s price to book ratio.

The price to book ratio is determined by dividing the stock’s current price by the company’s latest book value per share. A stock that is sold at a higher price than the price to book ratio may indicate overvaluation. It is undervalued if the stock is selling below its book value per share.

Cash Flow And Debt

A company’s cash flow and debt may be good indicators of whether certain stocks may offer good buy and hold options. A company’s cash flow is the amount of money that moves in and out of the business. It is a good indicator of how healthy a company is. Debt may also help provide an indication of a company’s health. It is the amount that the company owes to creditors. Debt should be manageable for a company to be considered healthy.