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Evaluating Stocks To Make Money!

Updated on January 27, 2015
CliftonHRodriquez profile image

Clifton H. Rodriquez is a certified public accountant (CPA) by profession, but a passionate investment enthusiast.

Stock Evaluation Table

Stock Symbol
Price
R/S Rating
ACC/DIS Rating
BETA Factor
Dividend Yield
Analysts Recommendation
Projected Price Target
AAL
55.69
97
B
1.59X
0.7
Strong Buy
65.83
FFIV
114.85
60
D+
1.24X
None
Hold
131.92
FB
77.83
81
C
1.65X
None
Strong Buy
90.18
INFN
16.99
98
A
1.95X
None
Moderate Buy
17.33
EGRX
18.92
98
A-
0.89X
None
Strong Buy
30.00
MTSI
34.79
99
A+
1.43X
None
Moderate Buy
32.50
MIK
25.58
96
A-
0.91X
None
Strong Buy
25.00
RMD
65.24
93
A
0.68X
1.7%
Hold
63.50
IPHI
20.50
97
A
1.06X
None
Strong Buy
23.33
NVRO
44.61
98
A
N/A
NONE
Strong Buy
35.00
ARRY
7.11
99
A
1.84
NONE
Moderate Buy
7.00
MDT
76.95
89
B-
1.0X
1.6%
Strong Buy
81.71
LXP
11.32
66
B-
0.74X
6.0%
Hold
N/A
RDWR
22.99
94
A
0.94X
None
Strong Buy
 
Prior to committing capital to the US Stock Market, an investor needs to properly vet stocks because in a market characterized by constant volatility, good stock picking leads to excellent profits.

A Stock Picker's Market

According to the December 2014 issue of the DRIP Investor, 51% of Americans do not own any risk assets (stocks) in their asset management portfolio, if you will. Why is this? What is it about the U.S. Stock Market that paralyzes the majority of US investors to the point that they completely avoid risk assets? Nobody seems to be able to place a firm finger on the real reason. However, numerous scientific and non-scientific studies point to the same culprit-FEAR of the Stock Market. Investors generally say that they do not understand the dynamics of the Market, and more importantly do not trust the Market. Many are convinced that when it comes to risk assets, or equities the field is not leveled for the retail, or mom and pop investors. Thus, many simply avoid risking their money in a market that is rigged against them.

Is there Any Truth To This Fear?

Investors are right about one thing, they simply do not understand the dynamics of the US Stock Market. In other words, they simply do not understand how it works. It is almost equivalent to them trying to learn and master a second language like French or German at the same time. It is simply too frustrating trying to figure out the Market's grammar and syntax, and thus they leave risk assets alone. Some investors may even hire, or retain a stockbroker, or investment banker to invest, or manage their investments. The danger associated with this approach is that they are completely entrusting their financial future to someone else, who may have a fiduciary responsible, but may lack any real interest in securing the financial future of that investor. There is a common saying in the investment community, which every investor needs to know and understand. It plainly states this: "Nobody is going to have a greater interest in securing an investor's financial future than the investor themselves". If any investors believes otherwise, there is a gentleman in federal prison by the name of Bernie Madoff. Mr. Madoff is directly responsible for perpetrating one of the biggest ponzy schemes involving risk assets in U.S. Stock Market history. The estimated losses associated with the ponzy scheme is roughly $50,000,000,000 and counting. He would eliminate any doubts about the aforementioned statement. The U.S. Stock Market is no mysterious enigma that the average investor could never understand. The Market itself is merely a collection of buyers and sellers with different interest, thought patterns and so forth. Everybody trading in the Market is looking out for their own interest, and conduct their trades accordingly. If an investor understands human nature, he or she can in effect understand the dynamics of the U.S. Stock Market. One great man in an effort to allay fears in his country during a time of economic depression that "there is nothing to fear but fear itself" (FDR, 1933).

A Stock Picker's Market

The U.S. Stock Market has and will always be a "stock picker's market". What exactly does that statement entail. It merely is saying that anyone wishing to risk capital in the U.S. Stock Market must be prepared to properly vet or investigate the risk assets, or stocks that they are about to pursue for profit. Not every stock listed on an exchange is worth an investor's money. Public as well as private companies literally become insolvent every day. Thus, an investor must evaluate every aspect of the risks associated with a particular stock. This statement should not be viewed as a suggestion to re-invent the wheel. There are evaluation methodologies available to any investor who is inclined to do his or her homework prior to committing capital to the Stock Market. There are also analysts who follow public corporations, and are readily available to offer an opinion on a particular stock. Some of these analysts are point on accurate and some are not. Thus, an investor should not solely rely upon the analyst community, or any recommendations coming out of it. Any retail investor can become a good stock picker. However, they must be willing to commit themselves to mastering an effective and proven approach to stock picking. One of the common and simple approach is IBD's CAN SLIM approach (see "www.investorbusinessdaily.com" for specific details, or the IBD Weekly Special). The entire CAN SLIM approach, or more specifically the "SmartSelect analysis" will not be covered here, but a modified version of it will be addressed below. Also, only the part of the evaluation criteria will be discussed. The table above lays out the modified evaluation of stocks; it uses some of the components of IBD SmartSelect. The approach is done each week by this author based upon data gathered from the IBD Weekly Special.

Modified Stock Evaluation Approach

The modified stock evaluation approach does not use the entire IBD SmartSelect method, but focuses primarily upon five (5) factors in evaluation stocks. The five factors are as follows: Stock price, R/S Rating, ACC/DIS Rating, BETA and Dividend Yield. What exactly are these items. The stock price is obvious; it is the current market price as of the close of the Market on any given day. Price goes up and down and changes frequently. The R/S Rating, or 'line compares a stock's price performance to the S & P 500. When the line is sloping higher, it means the stock is outperforming the S & P 500, a market benchmark; when it's moving sideways, it's more or less in line with the S & P 500 and when it's sloping downward, it's under performing the S & P 500' (http://www.education.investors.com/investors-corner). 'The ACC/DIS Rating appears as a letter grade, just like a report card: "A" for heavy buying, "B" for moderate, "C" for equal weight, "D" for moderate selling and "E" for heavy selling. The system gives the greatest weight to the most recent 13-week period. In that way, recent and current activity is stressed, not a stock's ancient history...'(http:www.education.com/investors-corner/429996). Beta is one of the Greek alphabets. However, in finance or investing, 'it is used to assess or measure the RISK arising from exposure to general market movements as opposed to idiosyncratic factors. The Market portfolio of all investable assets has a beta of exactly 1.0x. A beta below 1.0x can indicate either an investment with lower volatility than the market, or a volatile investment whose price movements are not highly correlated with the Stock Market. An example of the first is a treasury bill: the price does not go up or down a lot, so it has low beta. An example of the second is gold. The price of gold does go up and down a lot, but not in the same direction or at the same time as the Market' (http:\\www.wikipedia.org/wiki/Beta_finance).Finally, the last factor is the dividend yield of the stock. A dividend is a portion of the company's earnings (profits) that the Board of directors decides to return to the common shareholders. The yield is simply determined by taking the annual dividend and dividing it by the current market price. As a general rule, stocks that pay a dividend are better than stocks that do not pay a dividend. What this means is that dividend paying stocks are money makers, whereas growth or emerging market stocks are not, given that they do not pay a dividend or rarely pay one. In most cases, these companies need the money to continue to expand their growth, fund operations, or pay off debts. Investors must have a lot of patience, or simply resign themselves to the fact that they will only make money from capital appreciation of these stocks.

Author's Disclaimer: Readers should be aware of the fact that investing in the US Stock Markets carries with it substantial risk, which may result in loss of capital. Readers should not engage in any risky trading without consulting with a properly licensed investment adviser. No part of this article should be used as a substitute for consultation with said licensed investment adviser. The purpose of this article is to provide an evaluation or vetting approach which should be used to limit or mitigate an investor's chances of choosing inappropriate risk assets for their investment dollars.






Emerging Market and Growth Stocks Source of Profit

What Are Growth or Emerging Market Stocks

In general, growth or emerging market stocks are exactly as their name suggests. Investors need patience in dealing with these "infant" stocks, many of which are simply trying to establish their niche in a sea of growth, or emerging risk assets. A lot of these stocks may have a great products, or a pipeline of great products, which have yet to brought to market. Companies that are often talked about in the investment community and by the news media are the "Big Pharma" stocks. Many investor simply maintain a position in these stocks because a drug approval by the FDA or any related government agency usually is an indication of strong price movement in either direction (up or down) depending upon the nature of the news. At one time stocks like Apple, Microsoft, Boston Beer, Facebook, Twitter, and many, many more were a part of the growth or emerging market category. They have since established themselves as industry, or sector leaders, and are indeed deem to be valuable and profitable companies. In the growth, or emerging market stock universe, there are a lot of diamonds in the rough,and they are waiting to be discovered by investors.

Disclaimer of this article: The purpose of this article is to educate or inform readers about stock picking. It is not meant to be used in an advisory capacity; it is not meant as a substitute for a professional and licensed investment banker, or stock broker. The author is not a licensed stock broker, or investment banker. Any person reading this article should not use it to make any decision to invest their money in any risk asset. They should first consult with a professional investment adviser, and rely upon the advice given by that adviser before committing their hard-earned money to any risk asset.

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    • Mark Johann profile image

      Mark Johann 3 years ago from Italy

      I am following this hub. This may help me more in investing stocks. I hardly ever known this business.

    • CliftonHRodriquez profile image
      Author

      Clifton H. Rodriquez 3 years ago from Fort Lauderdale, Florida

      If you "un-follow" me, you will indeed miss out on my vast knowledge. Take a look at my most recent article, and then tell me if I am not worth following (LOL). Wait until you see my series of articles entitled "Making the Investment Case for ...." If you want to make money, you will indeed continue to follow and listen to me (LOL).

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