This can be committed to those of you which invest in individual stocks. I has shared along the strategy I have used over the years to choose stocks i have realized being consistently profitable in actual trading. I love to work with a blend of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a standard while using the fundamental analysis presented then
2. Confirm how 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 boosts the odds how the stock you choose is going to be profitable. It now offers a sign to market Chuck Hughes containing not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis will be the study of financial data for example earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over time I have used many strategies to measuring a company’s rate of growth to try to predict its stock’s future price performance. I used methods for example earnings growth and return on equity. I have realized these methods are certainly not always reliable or predictive.
Earning Growth
For instance, corporate net profits are at the mercy of vague bookkeeping practices for example depreciation, cash flow, inventory adjustment and reserves. These are typical at the mercy of interpretation by accountants. Today inside your, corporations they are under increasing pressure to beat analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product development, etc. Many times these write-offs are certainly not reflected like a continue earnings growth but rather make an appearance like a footnote on a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many businesses that from the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other indicator, which I have 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 which is maximizing shareholder value (the better the ROE better).
Which company is a lot more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The answer is Merrill Lynch by measure. But Coca-Cola has a much higher ROE. How is this 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 add up to about 5% from the total market value from the company. The stockholder equity is so small that almost any amount of net profit will produce a favorable ROE.
Merrill Lynch however, has stockholder’s equity add up to 42% from the market value from the company as well as a much higher net profit figure to make a comparable ROE. My point is that ROE will not compare apples to apples then isn’t a good relative indicator in comparing company performance.
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