Disclaimer!!!!!!

I see a lot of articles about investing and doing your due diligence, but rarely do I see any examples. Many of the articles I read, I feel, would leave the reader just as clueless as to what to look for as they were when they started. That having been said, there are a few things I want to tell you. 1. I do NOT hold a series 7 license. 2. I am NOT telling you what stocks I think you should buy. I am merely telling you what I look for and why I look for it. 3. I am NOT telling you to go willy nilly buying up tons of stock with money you don't have based on this hub. This is for informational purposes only, and is meant to give you a better perspective on exactly what "due diligence" is. So, do not run to your lawyer and try to sue me if things don't work out for you. Here is an old saying that every investor should take to heart:

"Don't invest any money you are not comfortable lighting a cigar with".

So. What do I look for in a stock?

Here, I will tell you some of the things I personally consider when looking into a stock. First, stocks carry much more risk than mutual funds, so if risk is not your cup of tea, don't read anymore of this article. Next, there are two types of schools of thought on investment research, technical and fundamental. Technical basically means studying charts and the movement of the stock in the attempt to find a pattern. Fundamental, my preferred method, involves looking at the financials and how fundamentally strong the company is. Much of this is subjective information, meaning the info doesn't always point to one thing or another, but helps me to make a decision based on other data. It is extremely important to look at what was going on in the economy during the time you are researching the stock. For example, many companies posted extreme gains in the 1980's but most of that was due to the market wide bull conditions of that time period, shortly afterward, many of those companies were bankrupt. Right now is another good example. Housing stocks (in truth most stocks) are down. That doesn't mean that they are bad companies. The overall climate for the market right now is actually controlled by you and me, or rather you and me multiplied by all the individual investors out there. It used to be that institutional investors made the markets, your mutual funds and wire houses, because they had so much buying power. They also had professionals that could wait out a bad quarter or two and hold a stock until it came back around. Now Joe Investor is in control, thanks in large part to the ease of opening an online trading account and reduced commissions. Joe Investor may read a head line in a news paper and freak out, dumping most of his shares in the company mentioned in the article he just read. So will hundreds of thousands of other Joe Investors, causing a drop in that stock and stocks that are connected with it.

The Data

For this article, we'll look at two stocks Lennar Corp (LEN) , and Duncan Energy Partners LP (DEP) . Once again, I will not suggest either one or tell you which to invest in, I will simply tell you what I would look for and if that information would lead ME to invest in it. You can do with that information what you want.

Where to go.

For my money, you don't get better than MSN Money. For one, it's free. Second, it provides a slew of information and ways to structure that information, all of which is helpful. So let's start with LEN.

LEN

I almost certainly would not invest in this company. Not right now anyway. By going to MSN Money and checking the company profile, I know this is a housing construction company, not a good idea in our current economy. Add to that the fact that their financial results shows a widening gap in their earnings per share for each of the last 3 years, and the fact that their forward P/E (Price to Earnings) Ratio is going from a current P/E of -1.35 to -10.33 doesn't make me feel good. Price to Earnings is basically taking all of the outstanding shares of stock and multiplying it by the current price. Then you take that number and divide it by the earnings of the company. Basically it shows how many times over the company is valued over how much it actually earns. So, for LEN they are worth negative 1.35 times the amount of money that they make, because the price of the stock is low (as of this article it was $10.02 per share). I also checked the Insider Trading tab, and the last time an "insider" (most likely an officer of the company, though you can click on their name to see their position) bought any shares was in July of 2007. That leads me to believe that they know something I don't. The Analyst ratings have consistently held this as a 'hold' recommendation. If it was showing good signs they'd have rated it a 'buy', and since it is their job to know things I don't, I include their thoughts in my decision making paradigm. That having been said, when the economy looks to be taking a turn around on the housing market, I might be persuaded to invest then. In July of 2005 this stock was at over $60.00 per share, and while it might not make it back that high (some of that could be due to the artificial inflation of the housing market, due to sub-prime lending) that price shows that they probably were the victim of market risk. Market risk is when a stock is devalued because the market as a whole takes a nasty turn, for this company it was both the market and the sector they are in. Likely, it was not due to bad management, just bad luck.

DEP

This one I'd definitely consider. The last year or so of insider trading shows many purchases, and their forward P/E is projected to increase over a full percentage point. The analysts look at this as a hold or strong buy, and they pay a dividend. Dividends are often overlooked now a days. For years a stock that paid a dividend was almost considered prestigious, but now it's almost like they are frowned upon. Dividends can be reinvested, which help you buy more shares of stock without investing more of your own money, or you can have them deposited into the holding or money market account most brokers have to hold your money until you decide what to buy. This way you can accrue dividends, get some dividends on that from the money market fund, and then buy other stocks. They are also in the natural gas / energy sector and that is a sector that the current administration, and the economy as a whole is looking to to help cut our dependence on foreign oil. It is a newer company, having been traded on the major exchanges from January of 2007, so that means one of two things. It could be a great opportunity to get in on the ground floor and make lots of money, or they could completely bomb and you could lose everything you invest in them. Caution is always the best policy for me when investing, so I might wait it out a bit.

Conclusion

I hope this helped show how information can be applied to investing, and how to do some (definitely not all) of your 'due diligence". My statements here are mine, not meant to either persuade or dissuade you from investing in either of these companies, and they were only used for informational and demonstrative purposes. Once again, investing is risky, and you should consult with a professional financial advisor prior to investing.