Investors Question Where To Invest As Market Matures

Since the beginning of the year Dow Jones Industrial Average and Nasdaq have enjoyed a remarkable rise. Investors could basically invest in anything and that would go up. However, people are more careful as to where to put their money. They are seeking for solid performers vs. shaky companies.

This is the time when investor euphoria is fading away. Now they are turning to the stock and company fundamentals. They now will look on company earnings and valuation. High quality stocks now will guide the market.

Now, during these volatile times profitability and high quality can be very elusive thing. Recently we had so many incentives and stimuli that it's hard to determine if the companies are really making money and sustaining profitability of just rolling on TARP stimulus or other types of incentives.

A story published in today's CNN Money by Pat Dorsey suggests to start the search by looking for the companies that have continuous history of good earnings, profitability and good return on capital.

"In general, firms with ROEs above 15% are viewed favorably. (You can look up ROE figures for stocks at morningstar.com.) Then, look for competitive advantages, or moats, that give you confidence the company can keep competitors at bay -- which ensures future profits and dominance, writes the Dorsey.

Dorsey is the qeuity research for Morningstar. He writes that he likes Mastercard (MC) and J.P. Morgan Chase (JPM). He favors Mastercard because it has a price to earnings ration of 15.8 and says Mastercard is not exposed to any credit risk. He likes J.P. Morgan Chase because it has a price to earning ration of 14.4. He says while quality and banks have not been synonymous understanding in the recent economic times it is worth to look into the strongest players in the industry as J.P. Morgan has "already taken market share from weaker competitors."

Our advice is this: look for value and put emotions aside when investing.

Written by Armen Hareyan