This is specialized in people which purchase individual stocks. I want to share together with you the ways I have used over time to pick out stocks i have found to get consistently profitable in actual trading. I love 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 the stock is surely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process raises the odds the stock you choose will be profitable. It offers a transmission to market options which includes not performed as expected 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 may be the study of monetary data such as earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over the years I have used many methods for measuring a company’s rate of growth to try to predict its stock’s future price performance. I have used methods such as earnings growth and return on equity. I have found that these methods usually are not always reliable or predictive.
Earning Growth
By way of example, corporate net profits are susceptible to vague bookkeeping practices such as depreciation, cash flow, inventory adjustment and reserves. These are common susceptible to interpretation by accountants. Today as part of your, corporations they are under increasing pressure to get over analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their balance sheet for specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed website, etc. Many times these write-offs usually are not reflected being a continue earnings growth but alternatively arrive being a footnote over a financial report. These “one time” write-offs occur with more frequency than you could possibly expect. Many companies that form the Dow Jones Industrial Average have such write-offs.
Return on Equity
One other popular indicator, which i’ve found just 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’s maximizing shareholder value (the larger the ROE the better).
Which company is a lot more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%
The answer is Merrill Lynch by measure. But Coca-Cola has a much higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola can be so over valued what has stockholder’s equity is just corresponding to about 5% with the total market price with the company. The stockholder equity can be so small that just about anywhere of net gain will make a favorable ROE.
Merrill Lynch however, has stockholder’s equity corresponding to 42% with the market price with the company and requirements a much higher net gain figure to produce a comparable ROE. My point is always that ROE doesn’t compare apples to apples then is not a good relative indicator in comparing company performance.
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