This can be specialized in those of you who want to purchase individual stocks. I has shared together with you the ways I have used over the years to pick stocks i have found to get consistently profitable in actual trading. I like to work with a mixture of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:
1. Select a standard while using fundamental analysis presented then
2. Confirm the stock is definitely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being higher than the 100-Day EMA
This two-step process raises the odds the stock you decide on will likely be profitable. It also provides a signal to trade options which includes 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, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis is the study of monetary data including earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to aid select securities for future price appreciation. Over many years I have used many strategies to measuring a company’s rate of growth so that they can predict its stock’s future price performance. I used methods including earnings growth and return on equity. I have found that these methods usually are not always reliable or predictive.
Earning Growth
By way of example, corporate net earnings are be subject to vague bookkeeping practices including depreciation, cashflow, inventory adjustment and reserves. These are all be subject to interpretation by accountants. Today more than ever before, corporations they are under increasing pressure to overpower analyst’s earnings estimates which results in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own 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 a continue earnings growth but rather show up as a footnote with a financial report. These “one time” write-offs occur with increased frequency than you could expect. Many businesses that constitute the Dow Jones Industrial Average took such write-offs.
Return on Equity
Another popular indicator, which i’ve 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 is certainly maximizing shareholder value (the greater the ROE the better).
Recognise the business is more successful?
Coca-Cola (KO) which has a Return on Equity of 46% or
Merrill Lynch (MER) which has a Return on Equity of 18%
The answer then is Merrill Lynch by any measure. But Coca-Cola includes a higher ROE. How is possible?
Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola is really over valued that its stockholder’s equity is just add up to about 5% from the total monatary amount from the company. The stockholder equity is really small that almost anywhere of post tax profit will develop a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity add up to 42% from the monatary amount from the company and needs a greater post tax profit figure to produce a comparable ROE. My point is that ROE won’t compare apples to apples then is very little good relative indicator in comparing company performance.
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