This really is committed to those of you who want to invest in individual stocks. I wants to share along with you the methods I have used over time to select stocks which i are finding being consistently profitable in actual trading. I want to use a mix of fundamental and technical analysis for choosing stocks. My experience indicates that successful stock selection involves two steps:
1. Select a regular while using fundamental analysis presented then
2. Confirm that the stock is 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 that the stock you select will be profitable. It offers a signal to sell Automatic Income Method that has not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful means for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis will be the study of economic data including earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over many years I have used many strategies to measuring a company’s rate of growth so as to predict its stock’s future price performance. I have used methods including earnings growth and return on equity. I are finding why these methods are not 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 all at the mercy of interpretation by accountants. Today as part of your, 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 their balance sheet for things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs are not reflected being a continue earnings growth but make an appearance being a footnote over a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many businesses that constitute the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other indicator, which i’ve found just isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a high return on equity with successful corporate management that’s maximizing shareholder value (the larger the ROE the greater).
Which company is a lot 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 any measure. But Coca-Cola has a higher ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola is so over valued that its stockholder’s equity is only equal to about 5% with the total rate with the company. The stockholder equity is so small that nearly anywhere of post tax profit will make a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity equal to 42% with the rate with the company and requirements a much higher post tax profit figure to produce a comparable ROE. My point is that ROE does not compare apples to apples then is not a good relative indicator in comparing company performance.
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