That is specialized in those who would like to spend money on individual stocks. I wants to share along with you the ways I have tried personally through the years to select stocks which i have found to be consistently profitable in actual trading. I prefer to utilize a blend of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:
1. Select a stock with all the fundamental analysis presented then
2. Confirm that this stock is definitely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA
This two-step process raises the odds that this stock you decide on will probably be profitable. It even offers an indication to offer Automatic Income Method which includes not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful means for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis is the study of monetary data including earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over time I have tried personally many strategies to measuring a company’s rate of growth so as to predict its stock’s future price performance. I have used methods including earnings growth and return on equity. I have found these methods are certainly not always reliable or predictive.
Earning Growth
By way of example, corporate net earnings are subject to vague bookkeeping practices including depreciation, cash flow, inventory adjustment and reserves. These are subject to interpretation by accountants. Today more than ever, corporations they 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 the balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product development, etc. Many times these write-offs are certainly not reflected as being a continue earnings growth but rather arrive as being a footnote on a financial report. These “one time” write-offs occur with additional frequency than you might expect. Many businesses that constitute the Dow Jones Industrial Average have such write-offs.
Return on Equity
One other popular indicator, which i’ve found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a high return on equity with successful corporate management that’s maximizing shareholder value (the better the ROE the higher).
Recognise the business is a bit more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The reply is Merrill Lynch by any measure. But Coca-Cola includes a higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola is so over valued that its stockholder’s equity is just corresponding to about 5% from the total market price from the company. The stockholder equity is so small that nearly any amount of net profit will make a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity corresponding to 42% from the market price from the company and needs a much higher net profit figure to make a comparable ROE. My point is that ROE won’t compare apples to apples therefore is very little good relative indicator in comparing company performance.
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