This really is committed to individuals which spend money on individual stocks. I would like to share with you the methods Personally i have tried through the years to select stocks that we have found being consistently profitable in actual trading. I want to utilize a combination of fundamental and technical analysis for choosing stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a share while using fundamental analysis presented then
2. Confirm the stock is surely 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 select will likely be profitable. It offers a signal to market ETFs which has not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is another useful way for selecting stocks for covered call writing, yet another kind of strategy.
Fundamental Analysis
Fundamental analysis could be the study of monetary data including earnings, dividends and money flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over time Personally i have tried many methods for measuring a company’s rate of growth to try to predict its stock’s future price performance. I purchased methods including earnings growth and return on equity. I have found that these methods usually are not always reliable or predictive.
Earning Growth
As an example, corporate net profits are susceptible to vague bookkeeping practices including depreciation, cash flow, inventory adjustment and reserves. These are all susceptible to interpretation by accountants. Today more than ever, corporations are under increasing pressure to conquer 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 specific things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs usually are not reflected like a drag on earnings growth but make an appearance like a footnote on a financial report. These “one time” write-offs occur with more frequency than you could expect. Many companies that from the Dow Jones Industrial Average have got 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 an increased return on equity with successful corporate management which is maximizing shareholder value (the higher the ROE the greater).
Which company is a bit more successful?
Coca-Cola (KO) using a Return on Equity of 46% or
Merrill Lynch (MER) using a Return on Equity of 18%
The answer then is Merrill Lynch by measure. But Coca-Cola includes a much 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 the reason is stockholder’s equity is just comparable to about 5% in the total market price in the company. The stockholder equity is really small that nearly any amount of post tax profit will create a favorable ROE.
Merrill Lynch alternatively, has stockholder’s equity comparable to 42% in the market price in the company and requires a much higher post tax profit figure to generate a comparable ROE. My point is always that ROE does not compare apples to apples so therefore isn’t a good relative indicator in comparing company performance.
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