Stock Variety

That is dedicated to those who would like to invest in individual stocks. I wants to share with you the strategy I have used over the years to pick out stocks that I have discovered to get consistently profitable in actual trading. I prefer to work with a blend of fundamental and technical analysis for selecting stocks. My experience indicates that successful stock selection involves two steps:

1. Select a stock while using fundamental analysis presented then
2. Confirm how the stock is definitely an uptrend as indicated by the 50-Day Exponential Moving Average Line (EMA) being above the 100-Day EMA

This two-step process raises the odds how the stock you select will likely be profitable. It even offers an indication to sell stock that has not performed as expected if it’s 50-Day EMA drops below its 100-Day EMA. It is a useful method for selecting stocks for covered call writing, a different sort of strategy.

Fundamental Analysis

Fundamental analysis will be the study of financial data such as earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help you select securities for future price appreciation. Over time I have used many methods for measuring a company’s growth rate so as to predict its stock’s future price performance. I manipulate methods such as earnings growth and return on equity. I have discovered the methods usually are not always reliable or predictive.

Earning Growth
By way of example, corporate net profits are subject to vague bookkeeping practices such as depreciation, cash flow, inventory adjustment and reserves. These are subject to interpretation by accountants. Today as part of your, corporations are under increasing pressure to get over analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on the balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed developing the site, etc. Many times these write-offs usually are not reflected being a continue earnings growth but show up being a footnote on a financial report. These “one time” write-offs occur with an increase of frequency than you may expect. Many companies that form the Dow Jones Industrial Average took such write-offs.

Return on Equity
One other indicator, which has been found is just not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a top return on equity with successful corporate management that is certainly maximizing shareholder value (the higher the ROE better).

Which company is a bit 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 features a better ROE. How are these claims possible?

Return on equity is calculated by dividing a company’s net income by stockholder’s equity. Coca-Cola is indeed over valued what has stockholder’s equity is just add up to about 5% of the total market value of the company. The stockholder equity is indeed small that almost any amount of net income will create a favorable ROE.

Merrill Lynch conversely, has stockholder’s equity add up to 42% of the market value of the company and requires a greater net income figure to create a comparable ROE. My point is ROE will not compare apples to apples then is very little good relative indicator in comparing company performance.
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