That is dedicated to those of you who would like to invest in individual stocks. I has shared together with you the methods Personally i have tried over time to pick out stocks that we have found to become consistently profitable in actual trading. I prefer to utilize a combination of fundamental and technical analysis for selecting stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a share using the fundamental analysis presented then
2. Confirm how the stock is definitely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process increases the odds how the stock you choose will likely be profitable. It even offers a transmission to sell options containing not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis is the study of financial data including earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over the years Personally i have tried many strategies to measuring a company’s rate of growth so that they can predict its stock’s future price performance. I purchased methods including earnings growth and return on equity. I have found why these methods are not always reliable or predictive.
Earning Growth
By way of example, corporate net profits are at the mercy of vague bookkeeping practices including depreciation, cashflow, inventory adjustment and reserves. These are common at the mercy of interpretation by accountants. Today as part of your, corporations they are under increasing pressure to overpower analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are not reflected as a continue earnings growth but alternatively show up as a footnote over a financial report. These “one time” write-offs occur with increased frequency than you may expect. Many firms that from the Dow Jones Industrial Average have got such write-offs.
Return on Equity
One other indicator, which I have found isn’t 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 larger the ROE better).
Which company is a bit more successful?
Coca-Cola (KO) with a Return on Equity of 46% or
Merrill Lynch (MER) with a Return on Equity of 18%
The reply is Merrill Lynch by measure. But Coca-Cola has a much higher ROE. How is this 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 it is stockholder’s equity is merely corresponding to about 5% of the total market price of the company. The stockholder equity is so small that just about any amount of post tax profit will produce a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% of the market price of the company and requirements a greater post tax profit figure to produce a comparable ROE. My point is ROE does not compare apples to apples so therefore is not an good relative indicator in comparing company performance.
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