This really is specialized in those of you who wish to purchase individual stocks. I has shared along with you the ways I have used over the years to choose stocks that I have found to be consistently profitable in actual trading. I want to make use of a combination of fundamental and technical analysis for choosing stocks. My experience indicates that successful stock selection involves two steps:
1. Select a stock with all the fundamental analysis presented then
2. Confirm that the stock is an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process raises the odds that the stock you choose is going to be profitable. It even offers a sign to trade Chuck Hughes containing not performed not surprisingly 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, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis is the study of financial data including earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over time I have used many options for measuring a company’s rate of growth so as to predict its stock’s future price performance. I manipulate methods including earnings growth and return on equity. I have found that these methods are certainly not always reliable or predictive.
Earning Growth
For instance, corporate net income is susceptible to vague bookkeeping practices including depreciation, cashflow, inventory adjustment and reserves. These are typical susceptible to interpretation by accountants. Today inside your, corporations they are under increasing pressure to get over analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are certainly not reflected as a drag on earnings growth but show up as a footnote on the financial report. These “one time” write-offs occur with more frequency than you may expect. Many firms that make up the Dow Jones Industrial Average have such write-offs.
Return on Equity
Another popular indicator, which i’ve found just 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 which is maximizing shareholder value (the greater the ROE the better).
Recognise the business is a bit more successful?
Coca-Cola (KO) which has a Return on Equity of 46% or
Merrill Lynch (MER) which has a Return on Equity of 18%
The answer is Merrill Lynch by measure. But Coca-Cola includes a much higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is so over valued what has stockholder’s equity is simply comparable to about 5% of the total monatary amount of the company. The stockholder equity is so small that nearly anywhere of net income will create a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity comparable to 42% of the monatary amount of the company and requirements a much higher net income figure to generate a comparable ROE. My point is the fact that ROE will not compare apples to apples then is not an good relative indicator in comparing company performance.
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