This really is dedicated to those who wish to put money into individual stocks. I would like to share along with you the methods I have used through the years to select stocks that I have realized to get consistently profitable in actual trading. I want to utilize a blend of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a regular 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 over the 100-Day EMA
This two-step process boosts the odds that this stock you select will probably be profitable. It also provides an indication to trade options which includes not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful way of selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis is the study of economic data for example earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over the years I have used many strategies to measuring a company’s growth rate so as to predict its stock’s future price performance. I manipulate methods for example earnings growth and return on equity. I have realized that these methods are not always reliable or predictive.
Earning Growth
As an example, corporate net earnings are be subject to vague bookkeeping practices for example depreciation, cash flow, inventory adjustment and reserves. These are typical be subject to interpretation by accountants. Today more than ever, 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 like failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are not reflected as being a continue earnings growth but instead arrive as being a footnote on the financial report. These “one time” write-offs occur with more frequency than you could expect. Many companies which from the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
Another popular indicator, which has been found is just 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 maximizing shareholder value (the larger 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 reply is Merrill Lynch by any measure. But Coca-Cola features a higher ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola can be so over valued the reason is stockholder’s equity is just corresponding to about 5% with the total market price with the company. The stockholder equity can be so small that nearly anywhere of net gain will produce a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% with the market price with the company as well as a much higher net gain figure to create a comparable ROE. My point is the fact that ROE does not compare apples to apples therefore is not an good relative indicator in comparing company performance.
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