Combining Fundamental & technical Analysis to pick great stocksHello,
One of the most often asked question is how I conduct my market research and today I will be trying to answer the question in a simple way. Below is my process flow
1: Screening Potential Stocks
Purpose: Narrow down the list of stocks to focus on those that meet specific criteria.
Method: Use a stock screener to filter stocks based on factors like market capitalization, industry, financial ratios, etc. Sometimes, I research a stock based on recent developments or personal interest.
For our case you can find the stocks screener via link here www.tradingview.com . This screener allows you to filter stocks across different countries and apply various metrics to find potential investment opportunities.
2: Industry Research
Purpose: Understand the industry landscape and identify key trends.
Method: Use paid services, data terminals, expert insights, and accessible news sources to gather information about the industry. Keeping up-to-date with industry news is crucial for insights.
A great recourse to use when trying to understand the industry is the spark via link www.tradingview.com This will be very key because it simplifies the industry and breaks how the peers are also performing.
3: Assessing Investment Feasibility and Risks
Purpose: Evaluate the feasibility of a company’s plans, potential risks, and its ability to execute effectively.
Method: Examine the company’s strategic priorities, planned capital expenditures, and historical performance. Assess whether the company has a track record of successfully executing similar strategies or acquisitions.
4: Analyzing Financial Performance
Purpose: Understand the company's financial health and value.
Method: Look at long-term ROI metrics, such as Return on Capital Employed (ROCE), Return on Invested Capital (ROIC), and Return on Equity (ROE). Conduct peer analysis by comparing these metrics with similar companies in the industry.
Analyzing a company’s financial statements is key to understanding its performance. TradingView offers a detailed breakdown of financial statements over comparative years. For example, see the financials for Bharti Airtel www.tradingview.com These dashboards include additional metrics that can provide deeper insights into a company's performance.
more metrics to help you better understand the companies are incorporated in the dashboards.
5: Valuation Analysis
Purpose: Determine if the stock is fairly priced relative to its peers and historical data.
Method: Use relative valuation methods, including Price-to-Earnings (P/E) ratio, EV/EBITDA, and Free Cash Flow Yield. Compare these metrics to historical figures and industry benchmarks to assess valuation.
6: Identifying Competitive Advantages (Moat)
Purpose: Find companies with sustainable competitive advantages that protect them from competition.
Method: Identify unique features or barriers that provide the company with a competitive edge. Look for aspects that align with Warren Buffett’s concept of a “moat,” such as brand strength, cost advantages, or proprietary technology.
7: Monitoring and Watchlisting
Purpose: Keep track of potential investment opportunities and be prepared to act on them.
Method: Add promising stocks to a watch list. Monitor their performance and news. Be ready to take advantage of price dips due to market events, ensuring the impact is not material to the company's fundamentals.
8: Organizing and Documenting Research
Purpose: Ensure research is accessible and easy to reference in the future.
Method: Summarize findings in bullet points, using frameworks like SWOT (Strengths, Weaknesses, Opportunities, Threats). Create a checklist of factors to consider for each company, allowing for a structured and repeatable research process.
9: Continuous Review
Purpose: Stay informed and adaptable in investment decisions.
Method: Regularly review research and stock performance to ensure no critical updates are missed. Adjust investment thesis based on new information or changes in the company’s fundamentals.
10: Technical Analysis Using Wave Theory
Purpose: Predict future price movements and identify potential buying or selling opportunities.
Method: Utilize Elliott Wave Theory, which is a form of technical analysis that identifies recurring price wave patterns in financial markets. The theory suggests that market prices move in predictable cycles of five waves (impulsive) and three waves (corrective), driven by investor psychology and market sentiment. By analyzing these wave patterns, traders and analysts can forecast potential market trends and turning points. Combining wave theory with other technical indicators can enhance the accuracy of predictions and support informed decision-making.
the chart shows that the price of the stock is at the top & although all fundamentals might lead to it being a great company, buying at the top is not wise. Wait for correction before buying.
Goodluck!