This can be dedicated to those of you who want to put money into individual stocks. I wants to share along the strategy I have tried personally through the years to choose stocks that I have realized to get consistently profitable in actual trading. I like to use a combination of fundamental and technical analysis for choosing stocks. My experience indicates that successful stock selection involves two steps:
1. Select a stock using the fundamental analysis presented then
2. Confirm that this stock can be an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA
This two-step process enhances the odds that this stock you choose will likely be profitable. It even offers a sign to offer options that has not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way of selecting stocks for covered call writing, a different type of strategy.
Fundamental Analysis
Fundamental analysis will be the study of financial data for example earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over recent years I have tried personally many options for measuring a company’s rate of growth to try to predict its stock’s future price performance. I used methods for example earnings growth and return on equity. I have realized why these methods are certainly not always reliable or predictive.
Earning Growth
For example, corporate net earnings are be subject to vague bookkeeping practices for example depreciation, earnings, inventory adjustment and reserves. These are be subject to 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 their own balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs are certainly not reflected being a continue earnings growth but appear being a footnote on the financial report. These “one time” write-offs occur with additional frequency than you could expect. Many businesses that form the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other indicator, which I have 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 which is maximizing shareholder value (the higher the ROE the greater).
Which company is more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The reply is Merrill Lynch by any measure. But Coca-Cola features a much higher ROE. How are these claims possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola can be so over valued that its stockholder’s equity is only add up to about 5% of the total market price of the company. The stockholder equity can be so small that almost anywhere of net profit will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity add up to 42% of the market price of the company as well as a much higher net profit figure to make a comparable ROE. My point is that ROE will not compare apples to apples then is not a good relative indicator in comparing company performance.
Check out about options go to see this useful web page: look at here now
Be First to Comment