This really is dedicated to those who want to spend money on individual stocks. I wants to share with you the methods I have tried personally over time to pick out stocks that we have found to become consistently profitable in actual trading. I prefer to use a mixture of fundamental and technical analysis for choosing stocks. My experience shows that successful stock selection involves two steps:
1. Select a regular while using fundamental analysis presented then
2. Confirm how the 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 how the stock you decide on is going to be profitable. It offers an indication to trade ETFs containing not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful means for selecting stocks for covered call writing, a different type of strategy.
Fundamental Analysis
Fundamental analysis will be the study of financial data including earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over time I have tried personally many options for measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I purchased methods including earnings growth and return on equity. I have found that these methods aren’t always reliable or predictive.
Earning Growth
For example, corporate net income is at the mercy of vague bookkeeping practices including depreciation, cash flow, inventory adjustment and reserves. These are common at the mercy of interpretation by accountants. Today as part of your, corporations they are under increasing pressure to overpower analyst’s earnings estimates which ends up 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 website, etc. Many times these write-offs aren’t reflected as a drag on earnings growth but instead show up as a footnote on a financial report. These “one time” write-offs occur with increased frequency than you might expect. Many firms that form the Dow Jones Industrial Average took such write-offs.
Return on Equity
Another popular indicator, which has been found just 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 that is certainly maximizing shareholder value (the greater the ROE the greater).
Recognise the business 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 reply is Merrill Lynch by measure. But Coca-Cola has a better ROE. How is this possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is so over valued the reason is stockholder’s equity is simply corresponding to about 5% of the total rate of the company. The stockholder equity is so small that nearly any amount of net income will make a favorable ROE.
Merrill Lynch however, has stockholder’s equity corresponding to 42% of the rate of the company and requires a much higher net income figure to produce a comparable ROE. My point is always that ROE doesn’t compare apples to apples then is not an good relative indicator in comparing company performance.
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