This can be committed to those of you which spend money on individual stocks. I would like to share with you the ways I have used through the years to pick stocks that I are finding to be consistently profitable in actual trading. I prefer to work with 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 the 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 increases the odds that the stock you end up picking will probably be profitable. It also provides a signal to offer ETFs which includes not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way of selecting stocks for covered call writing, a different type of strategy.
Fundamental Analysis
Fundamental analysis may be the study of financial data such as 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 many years I have used many means of measuring a company’s growth rate so as to predict its stock’s future price performance. I used methods such as earnings growth and return on equity. I are finding that these methods are not always reliable or predictive.
Earning Growth
As an example, corporate net profits are subject to vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are common subject to interpretation by accountants. Today as part of your, corporations they are under increasing pressure to beat 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 product, etc. Many times these write-offs are not reflected as being a drag on earnings growth but show up as being a footnote on the financial report. These “one time” write-offs occur with increased frequency than you may expect. Many firms that from the Dow Jones Industrial Average have got such write-offs.
Return on Equity
Another popular indicator, which has been found 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 maximizing shareholder value (the greater the ROE the greater).
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 measure. But Coca-Cola includes a higher ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola can be so over valued what has stockholder’s equity is just comparable to about 5% of the total rate of the company. The stockholder equity can be so small that just about anywhere of net profit will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity comparable to 42% of the rate of the company as well as a much higher net profit figure to generate a comparable ROE. My point is the fact that ROE does not compare apples to apples then is very little good relative indicator in comparing company performance.
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