V' STOCKS

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V. STOCKS
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I. Fundamental Analysis (Continued)

• Basic Ratios
• i. Earnings per Share total earnings
• outstanding shares
• Tracks profitability regardless of firm size
• Price/Earnings Ratio (P/E Ratio)
• current share price
• earnings per share
• Provides a rough estimate of market opinion of
  current and future corporate operations
• 
  

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I. Fundamental Analysis (Continued)

• iii. Return on Assets earnings
• assets
• Measures efficiency of use of firm assets
• iv. Return on Equity earnings
• common stock equity
• Measures efficiency of the use of shareholder
  capital

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I. Fundamental Analysis (Continued)

• v. Return on Invested Capital (ROIC)
• EBITD
• common and preferred stock equity long term
  debt
• Measures efficiency of the use of the entire
  corporate capital structure
• vi. Debt/Equity Ratio total debt
• market capitalization
• Measures the leverage in a company and thus
• its vulnerability to interest rate changes

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I. Fundamental Analysis (Continued)

• vii. Current Ratio Current Assets
• Current Liabilities
• A measure of liquidity, whether a company
• has sufficient assets to pay current
  debts

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I. Fundamental Analysis (Continued)

• Issues Regarding Outstanding Shares
• Float the number of shares outstanding
  (available for purchase)
• Stock repurchase (buy back) program where a
  company purchases its own shares on the open
  market reduces float (reduces supply of
  shares), decreasing number of shares outstanding,
  increasing earnings per share, and increasing
  share price

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I. Fundamental Analysis (Continued)

• Choosing Stocks Based Upon Fundamentals
• Stock Market Selection Methods
• Dogs of the Dow buy highest yielding Dow stocks
  at the beginning of the year, selling best of
  stocks after 12 months
• Relative Strength from Investors Business Daily
  compares stocks with the overall market
  Investors.com HELP

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I. Fundamental Analysis (Continued)

• SP Star Quality Rankings stocks are ranked by
  anticipated performance based upon fundamentals
  http//www2.standardandpoors.com/spf/pdf/index/SP_
  Citigroup_Global_STARS_Methodology_Web.pdf?vregion
  usvlangen
• Value Line Value Line - The Most Trusted Name in
  Investment Research

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I. Fundamental Analysis (Continued)

• Diversification Selecting stocks that respond
  to the market in different ways stocks should
  not all be positively correlated (prices moving
  in the same direction), in the same industry, or
  with the same market cap
• Large Cap market capitalization in excess of
  5,000,000,000
• Midcap market capitalization from
  1,000,000,000 to 5,000,000,000
• Small Cap market capitalization of less than
  1,000,000,000

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I. Fundamental Analysis (Continued)

• Growth versus Value Stocks
• Growth Stock High P/E ratio, earnings expected
  to grow at an above average rate
• Value Stocks Low P/E ratio, searching for
  bargains stocks that are out of favor or in
  industries out of favor with investors but with
  good fundamentals
• Value Trap Low P/E ratio stock that is a bad
  investment P/E is low for a reason

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I. Fundamental Analysis (Continued)

• Cyclical Stocks Rise and fall with the economy
  in general ex. Transports
• Defensive Stocks Product demand exists in all
  phases of the business cycle consumer staples,
  drugs, etc.
• Domestic versus International If markets are
  performing poorly in one country, stocks from
  another country could be performing well

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I. Fundamental Analysis (Continued)

• Data Sources
• Financial press and Internet sites provide
  readily available information, but may not be in
  depth or timely
• Professional research can have greater depth,
  can reveal more obscure information, but can be
  biased and expensive
• Companies can provide fairly detailed
  information, but biased towards the company
• SEC filings very detailed and thorough, must be
  accurate, but difficult to read and not timely

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I. Fundamental Analysis (Continued)

• Other Approaches
• Buy what you know Purchase shares of
  companies that you do business with and are
  impressed by
• Consensus information Agreement among analysts
  or researchers regarding whether a stock is a
  good value

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J. Technical Analysis

• 50 Day Moving Average provides guidance
  regarding long term stock price movement trends
  (200 day very long term)
• Positive Momentum Above the moving average
• Negative Momentum Below the moving average
  AVAV Technical Analysis for AEROVIRONMENT, INC.
  - Yahoo! Finance
• 5 - 20 Day Moving Average Shows very short term
  trend

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J. Technical Analysis (Continued)

• Support Stock Bottom, price below which
  shares have historically not traded
• Resistance Stock Top, the price that the
  stock tends to bounce off of, a stop to further
  price advances
• Volume Shares traded per day, indicates whether
  a price movement is real (ex. stock trading
  higher on high volume shows interest in stock
  during price advances, stock price increasing on
  low volume is drifting

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J. Technical Analysis (Continued)

• Bollinger Bands One standard deviation above
  and below the stock price, based upon 20 day
  moving average a measure of stock price
  volatility http//us.rd.yahoo.com/finance/chart/ov
  erlay/bollinger/http/finance.yahoo.com/q/ta?sCS
  Xt1ylonzmqlpbac
• Sharp price changes tend to occur after the bands
  tighten, indicating a break out from a less
  volatile pattern
• Prices moving outside the bands indicate a
  continuing trend
• Trend reversal is indicated by bottoms or tops
  outside the band, followed by bottoms and tops
  inside the band
• A move originating at one band tends to move all
  the way to the other band

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J. Technical Analysis (Continued)

• Stock Chart Types In all types, y axis
  indicates price, x axis is time
• Line
• Bar (High, Low, Close)
• Candlesticks White stock up, Black stock
  down
• Point and figure
• Chart Scaling
• Arithmetic Even scale of price movements
• Logarithmic Scale by percentage change, works
  best for highly volatile stocks