How can fundamental analysis help in picking two stocks for long-term investment?

How I Used Fundamental Analysis to Pick Two Long-Term Stocks—And What I Learned Along the Way

If you’re like me, you’ve probably wondered: with so many stocks out there, how do experienced investors actually sift through the noise and find those rare, long-term winners? Fundamental analysis feels intimidating at first, but I’ve found it’s the most reliable way to dig past hype and get to the real value of a company. In this article, I’ll walk you through my real-world process of using earnings reports, growth forecasts, and balance sheets to select two stocks for a buy-and-hold strategy, all while sharing some of my missteps, insights, and a glance at how different countries handle financial reporting standards. This isn’t textbook theory—these are lessons learned the hard (and sometimes embarrassing) way, with practical tips and screenshots where possible.

Why Fundamental Analysis Can Give You the Edge

Most people I know started with “hot tips” or by chasing trends—until a few bad trades taught us the difference between luck and skill. What fundamental analysis does is anchor your decisions in data: you’re looking at real earnings, actual assets, and management strategies instead of market sentiment. Warren Buffett famously says he buys businesses, not tickers (Berkshire Hathaway Shareholder Letter), and that stuck with me.

But here’s the twist: not every country defines “earnings” or “verified financials” the same way. The US has the SEC and GAAP, Europe has IFRS, and differences in what gets reported can affect your analysis. I found this out the hard way comparing a US and a UK bank stock—more on that later.

Step One: Digging Into Earnings—But Not Getting Fooled by Headlines

My first stop is always the company’s quarterly and annual reports (10-Q and 10-K for US stocks, accessible via SEC EDGAR). Real numbers, direct from the source.

I once got burned by relying on “adjusted earnings” from a press release. Turns out, companies can exclude all sorts of “one-time” costs. Now, I check both GAAP (Generally Accepted Accounting Principles) and non-GAAP figures. Here’s a simple process:

• Look for consistent, growing net income over at least 3-5 years.
• Check for positive free cash flow. (Net income can be gamed; cash flow is harder to fake.)
• Compare profit margins to industry peers—are they improving or shrinking?

Screenshot example: (EDGAR interface showing Apple’s consolidated income statement, highlighting “Net income” and “Cash flows from operations” rows.)

Step Two: Evaluating Growth Potential—But Not Getting Seduced by Hype

Some stocks look great on paper but have no real path to expand. I learned this after getting excited about a “disruptive” retail tech company—until I saw their sales barely budged for two years.

Here’s how I approach it now:

• Read management’s discussion in the annual report about future plans and risks.
• Compare analyst forecasts from sources like Morningstar or Yahoo Finance.
• Look at historical revenue and earnings-per-share (EPS) growth rates—are they steady, accelerating, or lumpy?
• Check for expanding markets: is the company moving into new geographies or products?

Screenshot example: (Yahoo Finance showing analyst EPS growth estimates for Microsoft over 3 years.)

Step Three: Balance Sheet Strength—My Wake-Up Call on Debt Ratios

I used to ignore balance sheets—big mistake. Once, I bought into a “safe” utility company only to realize later their debt had ballooned to unsustainable levels. The stock tanked when a credit agency downgraded them.

Now, I always check:

• Debt-to-equity ratio: Is it reasonable for the industry?
• Current ratio: Does the company have enough liquid assets to pay short-term liabilities?
• Return on equity (ROE): Is the company making good use of shareholder funds?

Screenshot example: (Morningstar’s “Financials” tab showing total debt, total assets, and key ratios for Johnson & Johnson.)

Global Differences in Financial Reporting: Why “Verified” Isn’t Always the Same

Here’s where things get tricky. “Verified” financials in the US aren’t always the same as those in Europe or Asia. The International Financial Reporting Standards (IFRS) and US GAAP sometimes handle things like revenue recognition differently (IFRS Foundation). I found this out comparing JPMorgan (US, GAAP) and HSBC (UK, IFRS)—the earnings looked similar until I dug into how loan losses were accounted for.

Always check which standard a company is using, especially if you’re comparing international stocks. The Deloitte IFRS resource is a great place to start.

Case Study: Picking Apple and Nestlé—What Worked, What Didn’t

Last year, I decided to put this process to the test. I wanted one US giant and one global staple. After weeks of reading filings (and probably too much coffee), I settled on Apple (AAPL, US) and Nestlé (NESN, Switzerland).

Apple: Consistent earnings growth, massive cash reserves, and expanding services business. But I almost skipped it after reading scary headlines about iPhone sales—until the latest 10-K showed booming revenue from services and wearables.

Nestlé: Less glamorous, but steady revenue, global diversification, and a rock-solid balance sheet. IFRS statements took some getting used to, but the fundamentals were clear.

What I learned: Don’t just trust summaries—read the actual filings. Compare apples to apples (pun intended) by understanding each country’s reporting quirks. And don’t get paralyzed by information overload; focus on the metrics that matter for your strategy.

Expert Insight: As CFA charterholder John Authers put it in a recent Financial Times column: “The best investors don’t predict the future; they build in a margin of safety by understanding the numbers today.”

Conclusion: My Takeaways and Next Steps

If there’s one thing I’d stress, it’s that fundamental analysis is a skill, not a trick. I’ve made mistakes—sometimes reading the wrong line in a filing, sometimes forgetting to check debt ratios. But over time, the process gets easier, and your confidence grows.

For anyone just starting, my advice: pick two companies you know, dig into their reports, and see if their fundamentals match their reputation. Use official filings, cross-check global standards, and don’t get discouraged by initial confusion. And remember, every expert was once a beginner who got lost in a balance sheet.

For further reading, check out the SEC’s guide to financial statements and the OECD Principles of Corporate Governance. Good luck—and learn from my mistakes so you don’t have to repeat them!