That is committed to people who wish to put money into individual stocks. I wants to share along the strategy I have used over the years to pick stocks that I have discovered to get consistently profitable in actual trading. I love to use a mixture of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:
1. Select a standard while using fundamental analysis presented then
2. Confirm how the stock is surely 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 how the stock you select is going to be profitable. It offers an indication to market Automatic Income Method that has 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, quantity strategy.
Fundamental Analysis
Fundamental analysis could 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 you select securities for future price appreciation. Over recent years I have used many means of measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I used methods for example earnings growth and return on equity. I have discovered these methods are 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 at the mercy of interpretation by accountants. Today inside your, corporations they are under increasing pressure to get over analyst’s earnings estimates which results 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 product development, etc. Many times these write-offs are not reflected as being a continue earnings growth but instead show up as being a footnote over a financial report. These “one time” write-offs occur with an increase of frequency than you may expect. Many companies that form the Dow Jones Industrial Average have such write-offs.
Return on Equity
One other indicator, which i’ve found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates an increased return on equity with successful corporate management which is maximizing shareholder value (the greater the ROE the greater).
Which company is 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 any measure. But Coca-Cola has a higher ROE. How is that this possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola is indeed over valued that it is stockholder’s equity is only equal to about 5% with the total rate with the company. The stockholder equity is indeed small that nearly any amount of net profit will develop a favorable ROE.
Merrill Lynch however, has stockholder’s equity equal to 42% with the rate with the company as well as a much higher net profit figure to generate a comparable ROE. My point is that ROE won’t compare apples to apples so therefore is not an good relative indicator in comparing company performance.
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