This can be specialized in individuals who want to spend money on individual stocks. I wants to share with you the methods I have used over the years to pick out stocks that we are finding being consistently profitable in actual trading. I prefer to utilize a combination of fundamental and technical analysis for choosing stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a regular while using the fundamental analysis presented then
2. Confirm that the stock can be an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process raises the odds that the stock you end up picking will probably be profitable. It also provides a transmission to market stock which has not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is also a useful means for selecting stocks for covered call writing, a different sort of strategy.
Fundamental Analysis
Fundamental analysis may be the study of monetary data such as earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over recent years I have used many strategies to measuring a company’s rate of growth so that they can predict its stock’s future price performance. I manipulate methods such as earnings growth and return on equity. I are finding these methods are certainly not always reliable or predictive.
Earning Growth
For example, corporate net income is be subject to vague bookkeeping practices such as depreciation, cash flow, inventory adjustment and reserves. These are typical be subject to interpretation by accountants. Today as part of your, corporations they are under increasing pressure to conquer 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 such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs are certainly not reflected as a drag on earnings growth but rather make an appearance as a footnote on the financial report. These “one time” write-offs occur with more frequency than you could expect. Many firms that from the Dow Jones Industrial Average have taken such write-offs.
Return on Equity
One other popular indicator, which I have found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a higher return on equity with successful corporate management that is maximizing shareholder value (the better the ROE better).
Which company is much 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 carries a higher ROE. How is that this 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 its stockholder’s equity is just add up to about 5% with the total rate with the company. The stockholder equity can be so small that almost any amount of net income will create a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity add up to 42% with the rate with the company and requires a much higher net income figure to make a comparable ROE. My point is the fact that ROE doesn’t compare apples to apples then isn’t a good relative indicator in comparing company performance.
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