This is committed to those who want to put money into individual stocks. I wants to share along with you the ways I have tried personally over time to pick stocks that I have found to be consistently profitable in actual trading. I want to make use of a mix of fundamental and technical analysis for selecting stocks. My experience has demonstrated that successful stock selection involves two steps:
1. Select a stock using the fundamental analysis presented then
2. Confirm how the stock is surely an uptrend as shown by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA
This two-step process enhances the odds how the stock you select will probably be profitable. It now offers a transmission 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 also a useful way for selecting stocks for covered call writing, a different sort of strategy.
Fundamental Analysis
Fundamental analysis may be the study of financial data such as earnings, dividends and funds flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over many years I have tried personally many options for measuring a company’s growth rate so as to predict its stock’s future price performance. I have used methods such as earnings growth and return on equity. I have found why these methods aren’t always reliable or predictive.
Earning Growth
By way of example, corporate net profits are susceptible to vague bookkeeping practices such as depreciation, cashflow, inventory adjustment and reserves. These are common susceptible to interpretation by accountants. Today more than ever, corporations are under increasing pressure to get over 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 like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs aren’t reflected as being a continue earnings growth but alternatively make an appearance as being a footnote on a financial report. These “one time” write-offs occur with more frequency than you could possibly expect. Many firms that constitute the Dow Jones Industrial Average have such write-offs.
Return on Equity
One other popular indicator, which I have found is just 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 better).
Recognise the business is much 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 any measure. But Coca-Cola carries a higher ROE. How is possible?
Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is so over valued the reason is stockholder’s equity is simply corresponding to about 5% from the total monatary amount from the company. The stockholder equity is so small that just about anywhere of net income will make a favorable ROE.
Merrill Lynch conversely, has stockholder’s equity corresponding to 42% from the monatary amount from the company as well as a greater net income figure to produce a comparable ROE. My point is the fact that ROE does not compare apples to apples so therefore isn’t a good relative indicator in comparing company performance.
To learn more about Automatic Income Method check our new web portal: check