This is specialized in those who would like to invest in individual stocks. I want to share along the techniques I have used over the years to pick stocks that I have discovered to be 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 stock while using 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 across the 100-Day EMA
This two-step process enhances the odds how the stock you select will be profitable. It now offers a transmission to offer options containing not performed not surprisingly if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way of selecting stocks for covered call writing, quantity strategy.
Fundamental Analysis
Fundamental analysis may be the study of monetary data including earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over time I have used many methods for measuring a company’s growth rate so as to predict its stock’s future price performance. I manipulate methods including earnings growth and return on equity. I have discovered that these methods are certainly not always reliable or predictive.
Earning Growth
As an example, corporate net earnings are subject to vague bookkeeping practices including depreciation, cashflow, inventory adjustment and reserves. These are common subject to interpretation by accountants. Today more than ever before, corporations are under increasing pressure to overpower analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on the balance sheet for things such as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are certainly not reflected being a drag on earnings growth but appear being a footnote with a financial report. These “one time” write-offs occur with more frequency than you may expect. Many companies that constitute the Dow Jones Industrial Average took such write-offs.
Return on Equity
One other popular indicator, which I have found isn’t 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 better the ROE the higher).
Which company 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 solution is Merrill Lynch by measure. But Coca-Cola includes a higher ROE. How is that 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 its stockholder’s equity is simply comparable to about 5% of the total monatary amount of the company. The stockholder equity is so small that almost any amount of post tax profit will make a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity comparable to 42% of the monatary amount of the company and requirements a greater post tax profit figure to make 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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