Financial Zip

        The stock market is a wild place.  For people who want to learn how it works and where to find a stock to invest in it can be very difficult.  There are tens of thousands of stocks out their and which one is best to invest in is really a crap shoot, at least that is what a lot of people say.  People are scared to get in to the market because of fear.  The way to conquer fear is to educate.  If you have the tools available to you and understand how something works.  It becomes easier to navigate the pitfalls that happen to others who don’t know what they are doing.  So let’s get educated. 

            Like I said in the beginning the stock market is a wild place, but what we want to do is find stocks that are steady and reliable over a good period of time.  Where do we look for those.  We find stocks that are in Sectors.  Why sectors.  Sectors are based on the economy.  The economy is very Cyclical in nature it eb and flows through different cycles.  You want to be able to find a sector that is doing well.  To find a sector to look into a website I like to use is www.barchart.com this is a website where you can find a sector to look into.

Up at the top there is a tab that plainly says sectors when you click on it will open up to a page that looks like this.

 

When you click into this page you will see that each sector is assigned an alpha number the higher the number the better the sector is performing and the better the sector is performing the better the stocks in those sectors.  So choose a sector that has a highly weighted alpha number.  Choose a sector that you are interested in or that you would like to follow.  Then choose a stock.  Also, when you choose a stock be sure that the volume is above 1 million.  The reason for this is that it gives you the ability to get in and out of a stock quickly so that if the price changes one way or the other you will be able to quickly change your strategy.  Write down the symbol of the stocks you are interested in and pick about 10 to start of with.

            Now here comes the part that will allow you to evaluate what is a solid stock.

A good place to go is to http://moneycentral.msn.com/home.asp   In this page type in the symbol.  It will take you to the quotes page and from here you start the evaluation process.  You will judge the stock on roughly 5 criteria

 

1.      Volume

2.      P/E ratio

3.      Earnings Estimates

4.      Ownership

5.      Recent News

 

1. Volume

Volume like I mentioned earlier is an indication of how fast you can get in and out of a stock.  This is important because you don’t want to be in a stock that starts to go down.  So you want to have enough people to sell to so that you don’t get stuck with that stock.

1. P/E Ratio

P/E ration stands for price earnings ratio. It shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.  Or if it where at 12  people would be willing to pay $12 for every $1 of earnings the lower the better generally if you see a P/E of 20 or less that is a strong stock.

 

1. Earnings Estimates

Earning Estimates are key to a company’s health and here you want to look for a growth that is +20.  Or another rule is if you have a high P/E ratio say around 50 but the earnings is a +110 then it is a good buy it indicates that the company is ready to grow substantially within the next year.  Here is and example of a Stock that has great earnings.  Look at the growth Rate.

 

QTR (12/07) is the 4^th Business quarter or 2007

FY(12/07) is the Earnings Estimates for 2007

QTR (3/08) is the Earnings Estimates for the 1^st Quarter of 2008

FY (12/08) is the Earnings Estimates for the year 2008

 

As you can see each there is healthy growth in this stock and would be a good stock to look into possibly buying.

 

1. Ownership

Owner ship is an indication of which institutional investors that are buying up the stock.  Institutional Investors are company’s that buy large sums of stock.  When you see an owner ship above 50-60% it show that these big company’s are interested in buying a stock.  Which means you should be to.  This stock Terra Industries has 114% stock being bought be institutional investors.  This is a good thing.

1. Recent News

The news is an important indication of how a stock is doing.  The news can affect a stock very quickly.  If there is a bad report that is circling around about the company it can affect the price of the stock negatively or if the news is good then the price of the stock can rise rapidly.  A good place to look is www.marketwatch.com.

 

So in summary when looking to find stocks:

1. Look at a sector that is doing well, likelihood is the stocks inside will follow
2. Pick at least 10 Stocks to do your Fundamental Analysis on
3. Volume                        + 1million
4. P/E ration                     +20
5. Earnings Estimates        +20 
6. Ownership                    +50-60%
7. Recent News                Look for the good news