This really is committed to individuals which invest in individual stocks. I want to share along with you the ways I have used over the years to select stocks i have found being consistently profitable in actual trading. I love to make use of a mixture 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 the stock is definitely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA
This two-step process increases the odds the stock you choose will likely be profitable. It offers a sign to market options which has not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful means for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis is the study of monetary data like earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over time I have used many means of measuring a company’s rate of growth to try to predict its stock’s future price performance. I manipulate methods like earnings growth and return on equity. I have found that these methods usually are not always reliable or predictive.
Earning Growth
For instance, corporate net income is at the mercy of vague bookkeeping practices like depreciation, income, inventory adjustment and reserves. These are at the mercy of interpretation by accountants. Today more than ever before, corporations 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 the balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs usually are not reflected being a drag on earnings growth but alternatively show up being a footnote over a financial report. These “one time” write-offs occur with more frequency than you might expect. Many businesses that form 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 higher the ROE the higher).
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 then is Merrill Lynch by measure. But Coca-Cola has a greater ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola can be so over valued that it is stockholder’s equity is just corresponding to about 5% in the total rate in the company. The stockholder equity can be so small that just about anywhere of net income will make a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% in the rate in the company and requirements a much higher net income figure to make a comparable ROE. My point is ROE will not compare apples to apples therefore is very little good relative indicator in comparing company performance.
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