This is specialized in those of you who want to spend money on individual stocks. I want to share together with you the ways Personally i have tried in the past to pick stocks that we are finding to be consistently profitable in actual trading. I prefer 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 with all the fundamental analysis presented then
2. Confirm the stock is surely 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 the stock you select will likely be profitable. It now offers a sign to offer Automatic Income Method containing not performed as you 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 such as earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over recent years Personally i have tried many means of measuring a company’s growth rate in an attempt to predict its stock’s future price performance. I manipulate methods such as earnings growth and return on equity. I are finding these methods usually are not always reliable or predictive.
Earning Growth
As an example, corporate net profits are susceptible to vague bookkeeping practices such as depreciation, income, inventory adjustment and reserves. These are susceptible to interpretation by accountants. Today more than ever before, corporations are under increasing pressure to conquer analyst’s earnings estimates which results 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 development, etc. Many times these write-offs usually are not reflected as a drag on earnings growth but show up as a footnote over a financial report. These “one time” write-offs occur with more frequency than you may expect. Many companies that from the Dow Jones Industrial Average have such write-offs.
Return on Equity
Another 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 is maximizing shareholder value (the better the ROE the greater).
Recognise the business is more successful?
Coca-Cola (KO) with a Return on Equity of 46% or
Merrill Lynch (MER) with a Return on Equity of 18%
The answer then is Merrill Lynch by any measure. But Coca-Cola has a higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net profit by stockholder’s equity. Coca-Cola is really over valued what has stockholder’s equity is only comparable to about 5% with the total market value with the company. The stockholder equity is really small that almost any amount of net profit will make a favorable ROE.
Merrill Lynch on the other hand, has stockholder’s equity comparable to 42% with the market value with the company and needs a much higher net profit figure to create a comparable ROE. My point is that ROE will not compare apples to apples so therefore is not a good relative indicator in comparing company performance.
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