The insight I gave on how to use third quarter earnings reports to your advantage as investors or traders must have made money for many that acted before now.
Here is another opportunity for you as the year 2017 is on the move already, the earlier you identify wining stocks and use them as building blocks of your tent, the better for you. This would only happen if you jump in on time in anticipation of good full year earnings and dividend at the end of day.
Equity prices appreciation is a function of company earnings and profitability at any given time, in addition to the prevailing state of the market and the economy at large.
Companies can only pay dividend or bonus when they declare profits, because this is the end product of competent management team, new products development, acquisition and expansion and so on.
Investors at this point should look at a company’s three full-year Earnings Per Share (EPS) to know if these numbers are rising or sliding and at the same time what percentage of its earnings were paid as dividend for those years.
Also, look at the company’s current financial year’s EPS to identify increasing earnings power on quarterly basis, to see if the number is looking up good. And then, compare the third quarter EPS with that of previous full-year to project the expected full year earnings and the likely dividend, which will give you another insight where you should put your money on time before others.
When the audited result finally hits the market, beating expectations, the stock price would expectedly rally while you are already inside. But, if the result goes the other way, quickly exit your position to cut your loss at any time.
Another thing to look out for after studying the earnings is the company’s operational cash flow to identify if cash comes. If cash flow from operation is going down while earnings are going up, it calls for more research, besides suggesting that the earnings are not sustainable.
Where cash flow is looking up in the same direction with earnings, this is an indication of real growth and value, meaning that such stock should be added to your portfolio for good. Also let the dividend yield of a company guide you when considering any stock. When a company’s share price has rallied too much or the payout ratio is small, the yield for that company is likely to be small, on the other way round, companies with good payout ratio and is undervalued or selling at a moderate price will have good yield. All these are dependent on the company’s earnings position.
SEE THE ATTACHED TABLE FOR STOCKS EARNINGS’ MOVEMENT AND DIVIDEND YIELD
Anther ways of selecting a wining Portfolio is using these investing methods below.
Valuation – There are plenty of practical evidence showing that stocks with low valuations will outperform the market over the long time. It is not easy to find ‘cheap’ stocks after the market’s impressive run, but we look for companies that are trading with low Price-to-Earnings (P/E) and Price-to-Book (P/B) multiples relative to their peers and their own history.
Management Effectiveness – It is very important to get a sense for how effective the company’s management is in utilizing the resources available to it. This can be done in a number of ways, but our research shows that Return on Equity (ROE) does a good job of capturing this attribute. So we seek out companies generating ROEs that are superior to their industry peers. Here, look for stocks that had done well with strong fundamentals, not just potential.
Recent Analyst Upgrades – Our research also clearly shows that stocks that have recently received a consensus upgrade recommendation from brokerage and independent analysts will continue to outpace the market. Most of that benefit is felt in the short run. However, quite often a stock that receives one upgrade is likely to get more in the future, which keeps pushing the stock’s price higher, especially if the company beats the estimates
Best Industries – Even the best looking stock will underperform the market if it is in an out-of-favour industry. That is why we overweight stocks from the best industries and sectors. And there is no better guide to choosing the right industry which focuses on the earnings estimate revisions for all the stocks in the industry.