As more Nigerians are turning to the stock market in search of better returns, many first-time investors are asking the same question: Which stocks should I buy?

The answer, according to market operators, is not to follow rumours or buy shares simply because their prices are rising. Instead, investors should pay attention to companies with strong financial performance, good corporate governance, consistent dividend payments and clear growth prospects.

Indeed, one of the easiest ways to identify such companies is to study the research reports released by licensed stockbroking firms and investment advisers. Every week, companies such as Cowry Asset Management, Meristem Securities, Vetiva Capital Management, CardinalStone Securities, Cordros Securities and Afrinvest publish reports showing the stocks they believe investors should buy, hold or sell after reviewing companies’ financial results, industry outlook and market valuation.

A stock with a ‘Buy’ recommendation means analysts believe its current market price does not fully reflect its value and that it has the potential to appreciate over time.

A ‘Hold’ recommendation suggests investors who already own the stock may keep it in their portfolios, while a Sell recommendation indicates that the stock may have limited upside or that investors should consider reducing their exposure.

The banking sector continues to dominate analysts’ recommendations this year. Shares of Access holdings, Zenith bank, Guaranty Trust Holding Company, United Bank for Africa and Fidelity bank have attracted positive ratings on the back of strong earnings, improving capital positions and expectations that the ongoing recapitalisation exercise will strengthen the industry further.

Aside banking stocks, analysts are also positive on selected companies in the industrial goods, oil& gas, telecommunications and consumer goods sectors. Firms such as Dangote cement, Seplat energy, Transcorp and MTN Nigeria remain among the stocks that continue to attract investors because of their earnings strength and long-term growth potential.

Even with this, experts are warning that no investment is without risk. Company earnings, inflation, interest rates, exchange rate movements and government policies can influence share prices. For this reason, investors are advised to avoid putting all their money in one stock or sector.

A better approach, according to investment professionals is to build a diversified portfolio, invest for the long term and review investments regularly as new company results and market information become available.

Meristem Securities said stock selection should be driven by company fundamentals, valuation and earnings outlook rather than short-term market movements.

According to CardinalStone Research, Nigeria’s improving macroeconomic fundamentals would continue to support domestic equities, although investors should remain mindful of global risks and election-related uncertainties.

For investors looking to make informed decisions, understanding why analysts recommend a stock may be more important than simply following a Buy or Sell rating. Looking beyond the recommendation to a company’s earnings, dividend record, valuation and future prospects can help investors make better investment decisions and reduce unnecessary risks.

As more listed companies release their financial results in the weeks ahead, analysts’ recommendations are expected to change in line with new information, making regular market research an important tool for every investor.