Prosper Newsletter: January 2007 > Stock
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Fearless Investing
Aloha! I just want to express my gratitude to my coach and your trading program! Thanks to the uncomplicated and professional approach of my coach I am trading successfully and I am fearless. Now, only after a few months, I can't wait to live the rest of my life trading for a living! I am making good money and I am super happy, and I really thank you from the bottom of my heart, especially my coach! Aloha and have a wonderful day!
- Maria C.
Ocean View, HI
The stock market is still roaring along and has set 22 record high closes in the since august. Areas of interest include major airlines and real estate development stocks. Housing starts were up 6.7% for the month of November. This is a significant increase in housing starts, which have been weak over the last 6 months. Utility stocks have been on the move as well. A lot of the country has been unusually warm during the last few weeks. Winter storms and cold air from the north has been moving across the US this week. The cold weather will increase demand for natural gas and the energy stocks as well. Wishing you all a prosperous New Year!
Fundamental Analysis
When you think of fundamentals, what do you think you are looking for? You are looking for the criteria that could make the stock move in price. The two main factors that make the market move are greed and fear. The main driving force is fear - fear of a company's earning potential or the lack of its earning potential.
Fundamental Analysis of a Stock
(Go to www.moneycentral.msn.com and type in the stock you wish to analyze. You should limit your "watch list" to no more than 10 stocks)
- The Average Daily Volume should be at least 1 million
- The difference between the 52 week high and low should be at least $20
- The Institutional Ownership states the percentage of outstanding shares that are owned by the larger institutions (such as mutual funds, 401k plans, etc.), it is a positive sign when this percentage increases.
- Earnings/Share: needs to be a positive number!
- Div/Share: (dividends per share) this should not be high, and should definitely not exceed 50% of the Earnings/Share number
- P/E: (price of the stock divided by earnings per share) compare against the industry standard to see if this stock is overvalued or undervalued or overpriced. The industry standard for a fairly valued stock is a P/E of 20.
- Click on the "Earnings Estimate" link in the light blue shaded area on the left side of the screen, just left of the P/E ratio. This shows the analysts' estimate projections for a company's earnings. Periodically, you should be comparing actual earnings to these estimates. Also, look at the Growth Rate - it should be consistent.
- Keep up-to-date on the news surrounding the stock. Get a feel for what kind of news moves the stock and get a feel for how they precede that information.
- Click on the "Company Report" in order to find out more about the particular stock. In the Company Report, look under the "Stock Activity" heading to find the Volatility (Beta) number. The beta is measure of the stock's price movement in relationship to the S&P500, which, by definition, is "the market." Normally speaking, you would like the volatility to be at least 1.5. Which means there is more volatility - more opportunity for making money.
