Stock Market Game
How to evaluate Stocks
Current Ratio
Dividend yield
EPS
Net Profit Margin
Price to Book ratio
P/E or multiple
Price to Sales ratio
Quick Ratio
Return on Equity
Some Technical Stock Measurements
Beta, relative price strength, volume
3 Stock Classifications you should know:
How you make money owning stocks?
Through Dividends
Total Return
Stocks allow you to own successful companies.
Companies themselves - Annual reports, Balance sheet, Income statement, 10-K, 10-Q
Stock databases
WWW - search tools - altavista, excite, lycos, webcrawler, yahoo
Investment organizations
Investors Alliance
National Association of Investors Corpn.
Co. health - Net Profit margin, Cash, Total Debt,
Stock Health - sales per share, cashflow per share, eps, dividend yield, roe, insider buys/ownership, stock buy-back
Past performance - eps rank, relative price strength rank, 5-year sales and earnings gain, 5-year price appreciation
Projected performance - sales, and earnings, projected stock high/low
Rankings - Value line timeliness/safety, S&P stars / fair value
Stock ratios - current p/e, average price to earnings (over 5-yr), price to sales, price to book, current ratio, quick ratio
Compare competitors
Growth or value
Company strengths
Company challenges
Why to buy?
Why to sell?
S&P's fair value: ranks from 1 to 5, 5 being the best (most undervalued). Look for S&P rankings 4 or 5.
Total # of shares outstanding (value line, S&P stock guide) * current stock price = Market capitalization
Daily $ volume = stock's average daily trading volume * share price
Sales (value line): careful about sales figure. Some are quarterly sales and some are annual figures. Use annual figures.
Net profit margin - income stt.
Cash and debt - balance sheet. debt rating downgrades.
sales per share - value line
5-year sales and earnings gain - Look for those that have grown an average of 10% per year over past 5 years. For small companies require 15%.
Projected Sales and earnings: Large co.s should be expected to grow at least 10% per year, medium co.s 15%, small atleast 20%
eps value line, cashflow per share and dividend yield (value line). For growth companies look for only those that have increased eps, sales per share, cf per share in each of the past 5 years and are projected to increase them again this year and next year.
Projected Stock high/low: bigger is better for both high and low.
Dividend yield: Want to buy large co.s with high dividend yields. Ignore dividend yield for small co.s. Relative Dividend yield (RDY) is used. Dividend yield of Co./(div. yld of S&P 500). Screen stocks for relative div. yld and then do fundamental research. Div. yld of S&P 500 in Feb. 98 is 1.6%.
ROE - compustat. 20% is good. Bigger, better.
insiderbuys/ownership - value line lists insider decisions to buy and sell for each month over the past year. Add the buy decisions and write down the no. Value line prints % of company that officers and directors own. More insider ownership, the better.
stock buyback - find out by browsing co.'s website or contact co.'s investor relations. Answer in terms of yes or no.
eps rank - investors business daily. rank from 1 to 99. eps rank 95 has earnings figures in the top 5% of all co.s in tables.
relative price strength - investors business daily ranks 1-99, 99 being the best.
5-year sales and earnings gain - Value line prints both sales and earnings growth per share for the past 5 and 10years in a small box titled "annual rates" on left side of each profile page.
5-yr price appreciation - how much stock price has changed over past 5 years. Take high price from 5 yrs ago and compare with current price. Use value Line.
Projected performance - 5 yr projected rates of change for sales and earnings - value line
3-year projected high and low price - from value line
Current P/E should be below or at the 5-year average p/e. P/E of any co. that is fairly priced will equal its growth rate of earnings. If p/e of Coca Cola is 15, you'd expect the co. to be growing at 15% per year. P/E < growth rate stock is a bargain.
Price to Sales. smaller is better
Price to book. smaller is better
current ratio at least 2. bigger is better
quick ratio at least .5. bigger is better.
max/min is stock's projected max gain and min gain, both expressed as percentages. Bigger is better for both max and min projections.
Management: how mgt is compensated, how board is constructed and insider ownership. Mgt pay should be tied to shareholder return
Don't buy a stock just because you like the "tone" of its annual report (it is like buying a product based on its advertisement)
Annual report reflects mgt's philosophies, policies or goals.
Does the Co. have products or services with sufficient market potential to make possbile a sizeable increase in sales for at least several years?
MUTUAL FUND MANAGERS CITED BELOW ARE THE ROYALTY OF PORTFOLIO MANAGEMENT TODAY.
Look at some Growth and Value Mutual Funds at Morningstar.com. Look at mutual fund's 25 largest holdings of portfolio-these stocks are the manager's biggest bets. You may want to consider some of these stocks.
Superiority of equities over other classes of assets
Way to make money is to take some risk and there are ways of minimizing the risk.
Your goal as stock investor, should be "an average annual return on investment of 7% to 10%" compared with 5%-6% on bonds and 4% on passbook savings.
If you are determined to become a smart stock picker, study the masters
well. Find a method that makes sense to you, fits your temperament and
suits your investment objectives. And then stick to it. IN INVESTING CONSISTENCY
IS A VIRTUE.