This is committed to those of you who want to purchase individual stocks. I wants to share along the methods I have tried personally over time to pick stocks which i have discovered to become consistently profitable in actual trading. I prefer to use a mixture of fundamental and technical analysis for selecting stocks. My experience shows that successful stock selection involves two steps:

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

This two-step process raises the odds that the stock you choose will likely be profitable. It offers a signal to market stock which has not performed as you expected if it’s 50-Day EMA drops below its 100-Day EMA. It can be another useful means for selecting stocks for covered call writing, quantity strategy.

Fundamental Analysis

Fundamental analysis is the study of financial data for example earnings, dividends and your money flow, which influence the pricing of securities. I use fundamental analysis to help select securities for future price appreciation. Over the years I have tried personally many means of measuring a company’s growth rate so that they can predict its stock’s future price performance. I used methods for example earnings growth and return on equity. I have discovered the methods are certainly not always reliable or predictive.

Earning Growth
For instance, corporate net income is subject to vague bookkeeping practices for example depreciation, income, inventory adjustment and reserves. These are all subject to interpretation by accountants. Today more than ever before, corporations they are under increasing pressure to overpower analyst’s earnings estimates which ends up in more aggressive accounting interpretations. Some corporations take special “one time” write-offs on his or her balance sheet for things like failed mergers or acquisitions, restructuring, unprofitable divisions, failed product, etc. Many times these write-offs are certainly not reflected as being a continue earnings growth but instead show up as being a footnote on a financial report. These “one time” write-offs occur with an increase of frequency than you may expect. Many firms that form the Dow Jones Industrial Average have taken such write-offs.

Return on Equity
One other popular indicator, which i’ve found isn’t necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a high return on equity with successful corporate management that is maximizing shareholder value (the better the ROE better).

Which company 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 is Merrill Lynch by measure. But Coca-Cola features a higher ROE. How is this possible?

Return on equity is calculated by dividing a company’s post tax profit by stockholder’s equity. Coca-Cola is so over valued that it is stockholder’s equity is simply equal to about 5% of the total market price of the company. The stockholder equity is so small that just about any amount of post tax profit will develop a favorable ROE.

Merrill Lynch alternatively, has stockholder’s equity equal to 42% of the market price of the company and needs a much higher post tax profit figure to produce a comparable ROE. My point is always that ROE won’t compare apples to apples so therefore is not a good relative indicator in comparing company performance.
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