This post was written by Latisha.
When you decide to make it a point to invest in a sustainable manner, you have to figure out how to research the best green investments. Beginning your research for sustainable investments is just like starting research for non-green investments. There is a simple 3 step process that I have used as my stock picking process and it is a good place to start for researching green investments as well.
The 4 Step Stock Picking Process
When researching sustainable investments, the 3 step stock picking process has been expanded into a 4 step process. Because you will need to learn a little bit more about where the company does business and how it brings in revenues, you will have an extra step.
Invest in What You Know
The best way to get started investing even if you don’t know much about the markets is to start by investing in what you know. If you are making a commitment to find companies that follow sustainable practices, you have probably also made a commitment to be more socially responsible. Start with the food you eat. Where does it come from? Are your fruits and vegetables from local grocers or did it come from a supermarket? If the supermarket stocks items from local farmers, the supermarket may be a good candidate for further research.
How about your cleaning supplies? Are you using items that can be thrown into the compost heap? What companies make those supplies? You would be surprises when you really start to think through all of the products that are a part of your daily life.
Research Their Business
Once you have figured out a few companies that you think may be a good fit as a socially responsible investment, it’s time to do some more research. You can dig deeper into what the company does by reading the annual statement. I created a youtube video on how to find the annual statement if you are not sure where to start. Basically you will visit the company’s website and look on the investor relations page to find the annual report. The annual report contains the company’s financial statements, usually an abbreviated version, along with management commentary on the business and current market. It should also break down the major lines of business and where the company is currently doing business.
Research Their Future Prospects
After you have learned more about the potential companies that you want to invest in, it’s time to determine if these companies will be good long term investments. Check out the latest news and history of the company. See if you can find a pattern. Do they regularly release new successful products? Do they often participate in charitable events that add to their brand recognition? You are looking for a company that has room to grow or a company that is successful in their current business.
Investigate Their Numbers
The last step in the stock picking process for finding green investments is to dig deep into the financial statements and compare ratios. The ratios that you want to pay attention to will depend on the industry that the company operates in. If it is an energy company that is focused on clean wind energy, you might want to compare their price to cash flow. Developing energy requires a substantial amount of time investment and you want to make sure the company is generating the cash flow it needs to stay in business. You will also want to compare that to the working capital. If they are in start-up mode and borrowing heavily to fund their operations they might have to sell assets in case of a short fall. You want to make sure that they have the liquid assets to cover all of their short-term liabilities.
How do you research individual stocks? Have you ever considered socially responsible investments?