This is focused on individuals who wish to put money into individual stocks. I would like to share along with you the ways I have used in the past to select stocks that we have discovered to become consistently profitable in actual trading. I love to make use of a mix of fundamental and technical analysis for selecting 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 how 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 raises the odds how the stock you decide on is going to be profitable. It now offers a signal to trade Automatic Income Method containing not performed needlessly to say if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful method for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis may be the study of monetary data such as earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over many years I have used many methods for measuring a company’s rate of growth so that they can predict its stock’s future price performance. I have used methods such as earnings growth and return on equity. I have discovered why these methods usually are not always reliable or predictive.
Earning Growth
For example, corporate net income is subject to vague bookkeeping practices such as depreciation, cash flow, inventory adjustment and reserves. These are subject to interpretation by accountants. Today as part of your, 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 their own balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs usually are not reflected like a continue earnings growth but instead show up like a footnote over a financial report. These “one time” write-offs occur with increased frequency than you may expect. Many companies which form the Dow Jones Industrial Average have such write-offs.
Return on Equity
One other indicator, which has been found is 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’s maximizing shareholder value (the larger the ROE better).
Which company is more successful?
Coca-Cola (KO) with a Return on Equity of 46% or
Merrill Lynch (MER) with a Return on Equity of 18%
The solution is Merrill Lynch by any measure. But Coca-Cola has a much higher 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 the reason is stockholder’s equity is simply corresponding to about 5% of the total monatary amount of the company. The stockholder equity is indeed small that nearly anywhere of net profit will develop a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% of the monatary amount of the company and requirements a greater net profit figure to make a comparable ROE. My point is ROE won’t compare apples to apples then is very little good relative indicator in comparing company performance.
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