This can be dedicated to those of you who would like to purchase individual stocks. I has shared along with you the ways Personally i have tried through the years to pick out stocks which i are finding to get consistently profitable in actual trading. I want to make use of a combination of fundamental and technical analysis for picking stocks. My experience has shown that successful stock selection involves two steps:
1. Select a regular with all the fundamental analysis presented then
2. Confirm that this stock is surely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being over the 100-Day EMA
This two-step process enhances the odds that this stock you select will be profitable. It even offers an indication to sell options 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, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis could be the study of economic data such as earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over recent years Personally i have tried many means of measuring a company’s growth rate so that they can predict its stock’s future price performance. I manipulate methods such as earnings growth and return on equity. I are finding that these methods aren’t always reliable or predictive.
Earning Growth
For instance, corporate net profits are susceptible to vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are common susceptible to interpretation by accountants. Today more than ever before, corporations they are under increasing pressure to conquer 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 aren’t reflected as a continue earnings growth but alternatively make an appearance as a footnote on a financial report. These “one time” write-offs occur with additional frequency than you could possibly expect. Many companies that constitute the Dow Jones Industrial Average have such write-offs.
Return on Equity
Another popular indicator, which I have found is not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a higher return on equity with successful corporate management that’s maximizing shareholder value (the better the ROE better).
Which company is a lot 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 measure. But Coca-Cola has a better ROE. How is that this possible?
Return on equity is calculated by dividing a company’s net gain by stockholder’s equity. Coca-Cola is really over valued that it is stockholder’s equity is simply equal to about 5% with the total monatary amount with the company. The stockholder equity is really small that nearly any amount of net gain will produce a favorable ROE.
Merrill Lynch however, has stockholder’s equity equal to 42% with the monatary amount with the company and needs a greater net gain figure to create a comparable ROE. My point is always that ROE does not compare apples to apples then is not an good relative indicator in comparing company performance.
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