That is dedicated to individuals who would like to put money into individual stocks. I would like to share with you the methods I have used through the years to select stocks that we have found being consistently profitable in actual trading. I want 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 standard while using the fundamental analysis presented then
2. Confirm that this stock is an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process boosts the odds that this stock you choose will be profitable. It offers a sign to trade ETFs containing not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful means for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis will be the study of economic data like earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over recent years I have used many means of measuring a company’s rate of growth in an attempt to predict its stock’s future price performance. I have used methods like earnings growth and return on equity. I have found these methods are certainly not always reliable or predictive.
Earning Growth
For instance, corporate net earnings are be subject to vague bookkeeping practices like depreciation, income, inventory adjustment and reserves. These are common be subject to interpretation by accountants. Today more than ever before, corporations are under increasing pressure to get over analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs are certainly not reflected as being a continue earnings growth but rather appear as being a footnote on a financial report. These “one time” write-offs occur with an increase of frequency than you could expect. Many companies that constitute the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other indicator, which has been found just isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a top return on equity with successful corporate management that is certainly maximizing shareholder value (the larger the ROE the higher).
Recognise the business is more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%
The solution 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 post tax profit by stockholder’s equity. Coca-Cola can be so over valued the reason is stockholder’s equity is only comparable to about 5% from the total monatary amount from the company. The stockholder equity can be so small that almost any amount of post tax profit will create a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity comparable to 42% from the monatary amount from the company and requires a much higher post tax profit figure to create a comparable ROE. My point is the fact that ROE doesn’t compare apples to apples so therefore is very little good relative indicator in comparing company performance.
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