How to Choose a Local Stock for Trading?

Recently, we have extended the instruments list with over 100 exclusive assets. Now, you can trade stocks and indexes of the Southeast Asian market. If you are a beginner looking to trade uncommon local stocks, learn about four key things to consider when choosing the best stocks for your trading.

Liquidity

When choosing stocks, it’s crucial to prioritize liquidity. This means selecting stocks with high trading volumes, like PT Bank Central Asia Tbk (BBCA). 

As one of the largest banks in Indonesia, BBCA has a market capitalization of over IDR 874 trillion as of July 2023. Its average daily trading volume is around 9 million shares. This ensures that there are plenty of buyers and sellers in the market, which makes it easy to buy and sell the stock without affecting the price too much.

Industry

It’s also wise to focus on local stocks from industries you understand or are interested in. For instance, if you work in the information technology industry, investing in local information technology companies could be a good choice. 

Take PT Telekomunikasi Indonesia Tbk (TLKM) for example. This state-owned telecommunications company is one of the largest companies in Indonesia, with a market capitalization of over IDR 293 trillion as of July 2023. The company offers a broad range of telecommunications services, including mobile, fixed-line, and internet services. Given the growth potential of the information technology industry, investing in Telekomunikasi Indonesia could be a smart move for those interested in this sector.

Sustainability

Assess the company’s long-term sustainability using financial data and earnings reports. 

For example, PT Unilever Indonesia Tbk (UNVR) is a consumer goods company that has been operating in Indonesia for over 85 years, producing and marketing a wide range of products, including food, beverages, personal care products, and home care products.

Unilever Indonesia has shown a commitment to sustainability by reducing greenhouse gas emissions and waste, promoting sustainable sourcing, and supporting local communities. Its financial reports also indicate consistent revenue growth and profitability over the years, indicating its ability to stay in the market in the long term.

True value

It is crucial to determine the accurate value of a company and compare it with its current stock price. This comparison can help in identifying whether the company’s stocks are undervalued or overvalued. 

For instance, if PT Bank Central Asia Tbk (BBCA) has a P/E ratio of 20 and earnings per share of IDR 1,000, the implied stock price would be IDR 20,000. If the current stock price is below IDR 20,000, then the stock may be undervalued. On the other hand, if Bank Central Asia has a P/B ratio of 3 and net assets per share of IDR 5,000, the implied stock price would be IDR 15,000. If the current stock price is higher than IDR 15,000, then the stock may be overvalued. 

Additionally, comparing a company’s financial ratios with its industry peers can help determine its standing in the market. If Bank Central Asia has a higher P/E ratio or P/B ratio compared to its peers, it may indicate that the stock is overvalued.

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