That is focused on those who want to invest in individual stocks. I wants to share along the strategy I have tried personally over the years to choose stocks that we are finding to be consistently profitable in actual trading. I like to utilize a combination of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a stock with all the fundamental analysis presented then
2. Confirm how the stock can be an uptrend as indicated 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 end up picking will likely be profitable. It now offers a transmission to market stock containing not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful means for selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis will be the study of monetary data including earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over recent years I have tried personally many strategies to measuring a company’s growth rate so as to predict its stock’s future price performance. I used methods including earnings growth and return on equity. I are finding that these methods aren’t always reliable or predictive.
Earning Growth
For instance, corporate net income is subject to vague bookkeeping practices including depreciation, cash flow, inventory adjustment and reserves. These are subject to interpretation by accountants. Today inside your, corporations they are under increasing pressure to overpower analyst’s earnings estimates which leads to 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 aren’t reflected as being a drag on earnings growth but rather appear as being a footnote on the financial report. These “one time” write-offs occur with increased frequency than you might expect. Many companies which from the Dow Jones Industrial Average have such write-offs.
Return on Equity
One other indicator, which has been found just isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a top return on equity with successful corporate management which is maximizing shareholder value (the better the ROE the better).
Which company is much more successful?
Coca-Cola (KO) having a Return on Equity of 46% or
Merrill Lynch (MER) having a Return on Equity of 18%
The solution is Merrill Lynch by any measure. But Coca-Cola includes a higher ROE. How is that this possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is indeed over valued that its stockholder’s equity is merely corresponding to about 5% with the total market price with the company. The stockholder equity is indeed small that almost anywhere of net income will produce a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity corresponding to 42% with the market price with the company and requirements a much higher net income figure to create a comparable ROE. My point is the fact that ROE does not compare apples to apples so therefore is very little good relative indicator in comparing company performance.
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