With the stock market up 150 points one day and down 400 the next, investing can be one of the most challenging tasks that a novice can take on. However, with sound research and a basic understanding of analyst predictions and company finance sheets, one can mitigate some of the risks by making a good investment choice. I, personally, am a proponent of the buy and hold strategy when it comes to investing as I have been burned by the day-trading methodology. But, the information provided by our previous presenter gives a good understanding for any type of investor to analyze a company and decide whether or not they are a good investment choice.
Ways to research stocks
What I have found to be useful:
- Yahoo finance
- Free research reports
- Going into consensus expectations in earnings
- whisper number
- Growth
- EPS
- top line
- bottom line
- Revisions
- Research what you know! If you like Nike, and you see everybody buying Nike, then start with Nike (Extra Info: In a previous two year period, the stock went up 67%).
- The Internet is the best database (everything is on the internet…almost everything…its getting to it that’s the problem)
- Check company website like the investor relations pages (go to www.Nike.com, and select “about Nike/jobs” and it will take you a page that will let you look at investor relations information. Check out a 10-Q (the company’s latest filings for the last reported quarter of earnings, then for a more detailed description, check out their 10-K, an annual report showing a more in-depth look into the business, including there own stated weaknesses or potential threats that they face currently or may face in the coming years- KEY). Listen to their conference calls or other webcast presentations and listen to what the analysts are asking about at the end of the conference calls. These questions are the main concerns for the people either recommending or downgrading the company, note though that because of the relationship with a majority of the banks with the companies, they do not typically issue too many negative recommendations like “Sell” ratings, they just say to “Hold” or the company will weather the storm and in the near future, the company will come out on top…they are full of hot air!
- You will never know as much as the sell-side research people do, these are the guys that are (typically) asking the questions during the conference calls. It is their job to know the CFO, CEO, Board members, and other high company level management by name, and have close relationships with them so that that may make or mask the company’s performance to their own clients or the market place.
- Pay attention to company guidance and consensus numbers, this is key. This is normally what drives the arbitrage in a share price. This is what you are looking for when you invest in a company. Question? Is the company consistently beating earnings, and surpassing the markets expectations (ie. Are they growing/doing better than what was already factored into the share price [this deals with Efficient market Hypothesis, meaning that if all information is factored into a stocks price, then the stock is correctly valued by the market place]).
- Whisper number- Even if they meet consensus numbers, another number formed by the best-of-the best analysts may have come up with a earnings number- not published- that they expect the company to meet or beat.
- Growth, P/E, ROE, Analysts revisions (last 30 days 60 days, etc… You also want to look at the overall consensus of the company, if its high, and something happens with the company, unexpectedly, then the stock will plummet. If the company has really low expectations than any positive data that comes out will help the stock if any information comes out that is “not as negative as expected” or to the upside/positive.
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