This really is dedicated to people who want to purchase individual stocks. I want to share along the strategy Personally i have tried over time to choose stocks i are finding to get consistently profitable in actual trading. I prefer to make use of a blend of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:
1. Select a standard with all the fundamental analysis presented then
2. Confirm that the stock is surely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being across the 100-Day EMA
This two-step process enhances the odds that the stock you select will probably be profitable. It also provides a transmission to market Chuck Hughes which has not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful way for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis will be the study of economic data like earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over recent years Personally i have tried many methods for measuring a company’s rate of growth in an attempt to predict its stock’s future price performance. I used methods like earnings growth and return on equity. I are finding that these methods are certainly not always reliable or predictive.
Earning Growth
For example, corporate net income is at the mercy of vague bookkeeping practices like depreciation, earnings, inventory adjustment and reserves. These are typical at the mercy of interpretation by accountants. Today more than ever, corporations they are under increasing pressure to beat analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product development, etc. Many times these write-offs are certainly not reflected as being a continue earnings growth but instead arrive as being a footnote on a financial report. These “one time” write-offs occur with additional frequency than you might expect. Many businesses that make up the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other indicator, which I have found is just not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a top return on equity with successful corporate management that is maximizing shareholder value (the greater the ROE better).
Recognise the business is a bit more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%
The reply is Merrill Lynch by any measure. But Coca-Cola carries a greater ROE. How is possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola is indeed over valued that its stockholder’s equity is only comparable to about 5% in the total monatary amount in the company. The stockholder equity is indeed small that almost anywhere of net profit will produce a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity comparable to 42% in the monatary amount in the company as well as a greater net profit figure to generate a comparable ROE. My point is the fact that ROE doesn’t compare apples to apples therefore is very little good relative indicator in comparing company performance.
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