This is specialized in individuals which spend money on individual stocks. I has shared along with you the techniques I have tried personally through the years to pick stocks that I have realized to be consistently profitable in actual trading. I like to use a combination of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:
1. Select a stock using the fundamental analysis presented then
2. Confirm how the stock is definitely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being over the 100-Day EMA
This two-step process enhances the odds how the stock you decide on is going to be profitable. It now offers a signal to offer Chuck Hughes containing not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is also a useful means for selecting stocks for covered call writing, a different sort of strategy.
Fundamental Analysis
Fundamental analysis may be the study of monetary data like earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over the years I have tried personally many options for measuring a company’s growth rate so as to predict its stock’s future price performance. I manipulate methods like earnings growth and return on equity. I have realized these methods are not always reliable or predictive.
Earning Growth
As an example, corporate net income is at the mercy of vague bookkeeping practices like depreciation, cashflow, inventory adjustment and reserves. These are all at the mercy of interpretation by accountants. Today more than ever, corporations are under increasing pressure to overpower analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs are not reflected as being a drag on earnings growth but alternatively make an appearance as being a footnote on a financial report. These “one time” write-offs occur with increased frequency than you could possibly expect. Many companies which from the Dow Jones Industrial Average have such write-offs.
Return on Equity
One other popular indicator, which has been found is not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates an increased return on equity with successful corporate management that is certainly maximizing shareholder value (the larger the ROE the better).
Which company is more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The solution is Merrill Lynch by any measure. But Coca-Cola features a better ROE. How is possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is indeed over valued that its stockholder’s equity is only corresponding to about 5% in the total market price in the company. The stockholder equity is indeed small that almost anywhere of net income will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity corresponding to 42% in the market price in the company and requirements a greater net income figure to create a comparable ROE. My point is that ROE does not compare apples to apples therefore is very little good relative indicator in comparing company performance.
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