There's a mountain of advice for market watchers seeking out their next big winner. On top of that, every ASX investor will likely search for ASX shares to buy in their own unique way.
For instance, if I were to create an ASX wish list, I'd be looking to fill it with quality businesses trading at cheap valuations.
That way, I believe, I would have a better chance of picking winning ASX shares with plenty of future prospects.
I would also pay special attention to creating a list of diverse ASX stocks, searching a wide range of sectors to find potential champions.
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How I'd build a 'best ASX shares to buy now' list
Find high quality ASX shares
There are plenty of factors that one can consider when assessing the quality of an ASX share. Personally, I would consider a company's competitive advantages and balance sheet.
A business able to corner a market that is reliant on its offerings is the gold standard. However, a loyal customer base and room for growth can also prove a strong advantage over competing businesses.
Additionally, a company with room for growth, the means to do, and extra cash in case of tough times could also be a quality ASX share.
Whichever way a market watcher determines if an ASX share represents good quality, the best place to start is often recent earnings and updates.
Additionally, it's important to keep an open mind when considering not only a stock's strengths but its weaknesses too. In many cases, current weaknesses can represent future risks.
It's also generally a good idea to compare an ASX-listed company to its peers.
Identify undervalued stocks
Another measure I would consider when building a 'best ASX shares to buy now' list is a stock's valuation. There are plenty of ways to assess if a stock is trading cheaply.
Two common and useful measures are price-to-book (P/B) ratios and price-to-earnings (P/E) ratios.
While no measure is perfect – and none can predict the future – these two ratios are simple to understand and can be easily calculated using a company's financial statements.
Once again, I would compare a company's valuation to that of its peers before adding it to my list.
Diversification
Finally, I would make a point to not focus on any single sector while building my 'best ASX shares to buy now' list.
A strategically diverse portfolio is less likely to be largely impacted by a downturn in a single sector.
Diversification can also allow a shareholder to take advantage of a diverse range of opportunities spread across the ASX.
Though, spreading a portfolio across numerous sectors neither guarantees returns nor downside protection.
