This really is dedicated to individuals who want to spend money on individual stocks. I has shared along the methods I have used through the years to select stocks which i have discovered to be consistently profitable in actual trading. I prefer to use a blend of fundamental and technical analysis for selecting stocks. My experience has shown that successful stock selection involves two steps:
1. Select a standard with all the fundamental analysis presented then
2. Confirm that the stock is definitely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being over the 100-Day EMA
This two-step process increases the odds that the stock you decide on will be profitable. It also provides a sign to trade stock which has not performed as you 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 sort of strategy.
Fundamental Analysis
Fundamental analysis may be the study of financial data like earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over time I have used many options for measuring a company’s growth rate to try to predict its stock’s future price performance. I have used methods like 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 profits are at the mercy of vague bookkeeping practices like depreciation, earnings, inventory adjustment and reserves. These are common at the mercy of interpretation by accountants. Today more than ever, corporations are under increasing pressure to get over analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs usually are not reflected as being a continue earnings growth but rather arrive as being a footnote on a financial report. These “one time” write-offs occur with an increase of frequency than you may expect. Many companies which form the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other popular indicator, which i’ve found is just not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a high return on equity with successful corporate management that is certainly maximizing shareholder value (the higher the ROE better).
Recognise the business 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 answer then is Merrill Lynch by measure. But Coca-Cola features a greater ROE. How is this possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola is really over valued the reason is stockholder’s equity is only add up to about 5% of the total rate of the company. The stockholder equity is really small that just about anywhere of net gain will make a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity add up to 42% of the rate of the company and needs a much higher net gain figure to make a comparable ROE. My point is that ROE will not compare apples to apples then is very little good relative indicator in comparing company performance.
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