Nearly everyone uses
|financial library||audio tapes||chart tips||investment terms||contact RS100|
Thoughts on Research...
Go to the "Stocks & Options" page at E*Trade.
1. Enter a stock symbol in the window (upper, center of page,) click "Detailed" and "Go."
2. Look at the quote, what of interest does it tell you?
a. Price per share under $25.00. Be wary of the Penny Stocks. They are usually eruptive and commonly have a wide spread between the bid & ask prices. Thus neglecting to allow your would be profits to materialize. Even though the price is going up and down, but only within the parameters set by the bid and ask prices, which are likely not moving. In reality the price is just for looks, because the bid & ask prices stay the same or at best fluctuate only slightly. After all, the bid & ask prices are the only prices that in my opinion, really matter to us.
b. Huge volume: in the millions is best, hopefully, at least several hundred thousand. The more there is, the more trading that the stock is experiencing. Demonstrating the amount of interest that market has in the stock, thus creating a better chance of the price moving.
c. Earnings: the larger the better.
d. P/E Ratio: Basically you want this to be low, but there is some controversy here in regards to how low. A loose rule of thumb is not over 30.00. However there isn't much basis for that statement without considering the earnings per share (EPS) also. We'll dig into that more next week. The Motley Fool tosses around this little phrase:
"In a fully and fairly valued situation, a growth stock's price-to-earnings ratio should equal the percentage of the growth rate of its company's earnings per share."
e. 52-Week High & Low: this is a good gauge for comparing the current price against.
3. Click "Historical" under Stock charts listed on the left border of the same page. I like to set the Time for "3 months" and Frequency for "Daily." How does it look? Is the volume usually pretty high, does the stock actually role up and down? Does it do this with a large enough difference between the cycle's lows and highs that you'll make a profit? What is the orange earnings triangle indicating? Are the earnings up or down? Don't forget about the $40.00 round trip for commissions that, you need to subtract from your profit.
If you buy a block of 100 shares, regardless of the ask price you paid per share, the stocks bid price has to rise 40 cents above this, before you can break even on selling the 100 shares. Everything after that is 100% profit... I'm not considering taxes here. Be conservative on how low or high you predict the price will go. The chart only shows what has already happened. Maybe it won't go as high the next time it goes up.
This is called Technical Analysis. Now to give us some reasoning power behind what we've seen on the chart we'll start looking at the finances (Fundamental Analysis) of the company. All companies are businesses and through fundamental analysis we can find out how successful they are at doing business. Is it making money, lots of money? If it is the stock may go up, if not, there's a good chance that it won't go back up after its next cyclic low.
4. Click on "Company News" under News. Take a look at what has been written about the company, E.G.: good news or bad? Bankruptcy / merger / technological break through / etc. These things can be used as indicators to show if the company has rough or smooth sailing ahead of it.
5. Click "Baseline Profits" under Company Profiles. Scroll through all the information here and pick out what you need, E.G.; Beta, percentage owned by institutions, Market Capitalization, P/E Ratio, volume 30 day average, earnings and revenues. This is on page 1 of 3.
We should be able to answer most of our research questions from the Stocks & Options page. The above is where we need to go and what we need to fine. Below is the over all list of what information we should have on a company, to enable us to make an educated buy.
These are basically in the same order as above:
1. Price under $25.00 per share.
2. Beta greater than 1.11. A beta of 1 means that the market and the stock move ups or down together, at the same rate. That is, a 5% up or down move in the market should theoretically result in a 5% up or down move in the stock. A beta coefficient of 2 suggests that the stock will tend to fluctuate, twice as much as the market. That is, if the market moves up 5%, then the stock should move up 10%. A beta coefficient of 0.5 indicates that the stock will move one-half as much as the market, either up or down. A negative beta, which is very rare, indicates that the stock will move in the opposite direction of the market. I thought that was pretty interesting!
3. At least 10% owned by institutions.
4. Large cap companies, market capitalization of greater than $5 billion.
5. Daily Dollar Volume greater than $1 million. This I can be found at the www.fool.com along with the Net Profit Margin.
6. 5 day average trading volume of greater than $2 million.
7. Sales and earnings growth of 25% or greater.
8. Check quarter versus same quarter a year ago. The minimum is 20% growth. It's best to see 30% and 50-70% is supreme.
9. Revenue of 10% or better per year is good. 5% will do and should be growing steadily.
10. Net Profit margin of at least 7%. This can be calculated by dividing the Net Income by the Revenues. You'll have to click over to www.fool.com again. I couldn't find the Net Profit or the dollar amount of Revenue listed anywhere in E*Trade. If you can find it, let me in on the location.
11. What does this company do? Is it something that is on the rise, E.G.; the advancement of computer technology? If it is, you could take that as a positive indicator.
12. What is the current news on this company? A report of huge block buys for example, would indicate that some organization is willing to sink great sums of money into this company... good sign.
I need some input on these:
1. A high relative strength of 90 or more: I'm still working on this one.
2. Liquidity Ratio ($000): is a measure of how much dollar volume is required to move a stock's price up or down by one percentage point. Liquidity Ratio = Dollar Volume / Total % Change. A high ratio indicates a stock, which requires relatively heavy trading to move its price. A low liquidity ratio indicates a stock, which moves on relatively light volume-either upward or downward. If anyone can figure out where to find the Liquidity Ratio on stocks please forward the info. I think it would be very useful!
Randy Robinson AKA Ygor writes:
One suggestion that I'd like to make is to focus in on what you are looking to do with the stocks that you're selecting. What I mean is, some of the stocks on your list, even the higher rated ones, are not suitable for rolling, though they would be great for buy-and-hold strategies, selling covered calls, etc. I would guess that at this point, the goal should be trying to find one thing that we can do well, from a strategy standpoint.
As far as stock selection criteria, you want a fairly decent volume and market cap. I've looked at companies trading with volume of 500,000 for their daily average. They seem strong and I doubt that you'd have any problem finding buyers, if that's the concern.
I'm not so clear on market cap, that fluctuates a lot with share price changes. Personally, I think volume is more important. I think a high beta (maybe > 1.2?) is nice but sometimes beta is misleading, too. A stock that has crashed (or skyrocketed) might show a high beta that won't really reflect short term volatility.
Blindly following mathematical formulas or charts is a real bad idea.
Ygor also mentioned, in regards to last week's quote for the weekly by Cervantes; "Of course, don't discount lavish expenditures, either."
I believe in summary of Ygor's statement, a trader, while in the midst of research material both technical and fundamental. Perhaps up to their knees, even. Needs to keep the thought in mind, to step back and look at the whole picture. Including the reading of any news printed on the company and its industry. Throw in some common sense and think through the process with a cool, calm head.
With Ygor's opinion in mind, I'd like to say that I agree. That cutting down the weed's so to speak, letting the better stocks show, does sound like an easier method of staying on track. For one thing I could keep the list of stocks down to, oh, let's say, one hundred. I'll just knock off the ones that are the high priced. The remaining one hundred can be divided into two major groups; rollers and non-rollers. I say that because I have a feeling that not all of us, are going to have the same theory as to just exactly what, a rolling stock should look like. I will however venture to say, that I think all of us are willing to make a fast dollar, on the rise of a healthy stock after we've watched it drop.
The end result of this move, should result in the rotating, both in and out, of a large percentage of the list. That large percentage should consist of the stocks, that are of a lesser value or use, to us. While simultaneously retaining the best stocks, as though it were a reservoir for rollers...oh, yeah...
As I novice it appears to me that the biggest dilemma that I have is:
Not knowing which stocks to buy. What happens if I make a bad choice? If I choose poorly and the stock doesn't go up, I lose money (bad thing!) I'll lose at least $40.00 in commissions ($20.00 to buy and $20.00 to sell) even if the stock never, ever goes down a cent. The obvious flip side of this is (speaking negatively) what if the stock drops in price. This equals = I lose money (bad thing, again!) On the same token, maybe after enough fumbling around the odds will be with me and I'll purchase a stock that rises.
Oh Happy, Happy Day! Yeah right. It won't be happy after I come back to Earth and realize that this didn't even make a dent in the losses that I've already accrued. Provided that it was just dumb luck that caused me to make "the right choice," it isn't very likely that it'll happen again anytime soon. Wait a minute; let me look in my checkbook quick. Sure, just as I suspected, VERY few zeros. You see the above described scenario is a picture of me, and I'm fighting like hell to ensure that it's a picture of the "past" me. The weapon that I'm using to fight this battle? Knowledge, knowledge breeds accuracy.
I've found that by going to the "Stocks and Options" page, that I can run a "Stock Quote" on all of the above mentioned stocks. Then I click on to the "Historical Charts" with a setting of 3 months / daily, and bring them up. From this technical analysis (the research of stocks via charts) I determine what price should be tentatively considered for the buy and sell of each. To further break this down; what I'm trying to say is that I simply look at the chart to see how low the price normally goes before it starts to escalate in price again and how high it'll go (resistance point) before it can be expected to decline once more.
Some stocks do not have enough of a buy / sell difference to be realistically considered for purchase. In other words there isn't going to be enough of an influx in price to pay for the commission and leave a profit. I then take the buy prices and insert them in my Rolling Stocks portfolio, as though I purchased the stock at this price. This then becomes the Cost Basis for each stock (or if you prefer, the simulated price that I bought it for.)
At the same time I figure out the amount of shares that I could realistically afford to buy and insert that figure into the portfolio for the Quantity of Shares (Qty.) I do this using the same amount of money for each stock. That way I can see which ones will produce the largest profits for me. E.G.; $1,000.00 divided by the price per share of the stock. We'll say that this particular stock is priced at $10.00 a share. Thus equating to 100 shares. Now then, here's what all this does for me:
The "Performance" tells me how close the stock is to its cyclic low. Which has already been predetermined (by looking at the expected low price on the chart) and placed in the Cost Basis column. The closer the Current Price is to the Cost Basis, the closer the stock is to its cyclic low. I use the same amount of money to work each stock equation so that I can have a honest assessment of each stock in comparison with the others.
In other words this tells me which one will generate the greatest profit, providing that prices move as predicted. A final note; the estimated price per share at the cyclic high (derived from observing the resistance point shown on the historical charts) is multiplied by the number of shares that were purchased. Finally just subtract the amount of commission spent involved in buying and selling the stock. What's left is the profit.
The "Watch List" tells me at a glance how much and in which the direction the stock's price per share, has changed that day.
Well all said, so far I've accomplished a lot of typing. But I still don't think that I could fundamentally select a stock. What I mean is that I need to be capable of taking each stock that I'm considering, and by studying its "Financials" (found on the Stocks and Options" page on the left hand border) be able to make a sound decision in regards to whether or not it's a good solid stock, a safe risk.
This is very important to know. Just because I can look at a chart and see its resistance point and its cyclic low, doesn't mean that I also know that when it does drop to it's cyclic low, that it won't just stay there, or even drop lower. Let the gray matter soak up some of this itemized list of what's been suggested as key points, from which the health and ultimately the likelihood of the stock rising, can be derived:
These are in no particular order.
1. A high relative strength of 90 or more
2. A minimum price tag of $7.00 per share.
3. Daily Dollar Volume somewhere from $1 million to $25 million.
4. Sales and earnings growth of 25% or greater.
5. $500 million or less in sales.
6. Profit margin or Net profit margin of at least 7%. This can be calculated by dividing the Net Income by the Revenues.
7. Insider holdings of 10% or more.
8. Positive cash flow from operations.
9. Large cap companies, market capitalization of greater than $5 billion.
10. Betas greater than 1.11.
11. One day trading volume greater than $1 million shares.
12. 5 day average trading volume of greater than $2 million.
13. Stocks under $25.00 a share.
15. Earnings growth.
16. Earnings growth potential. Earnings should be getting better and better all the time.
17. Revenue of 10% or better per year is good. 5% will do and should be growing steadily.
18. What does this company do?
19. What is the current news on this company?
20. Huge volume and huge block buys.
21. Check quarter versus same quarter a year ago. The minimum is 20% growth. It's best to see 30% and 50-70% is supreme.
Join here |
Free Trial Offer |
100 Rolling Stocks |
Site Map |
Must See Pages |
Tapes by LLH |
Financial Books |
The Classroom |
Lots of Research Tools |
1,000s of Symbols |
Learn to Read Charts |
Stock Related Sites |
Sign the Guestbook |
Weekly Bulletin by LLH |
Email from Members |
Financial News |
Your Portfolio |
Your Email account
RollingStock100.comTM Copyright 2001 Disclaimer Statement
Direct questions about this website to LLH@RollingStock100.com