Archives for March 2011

Fundamental Factors to Consider when Picking Stocks- Choose your Brokers Carefully Too!

fundamental factorsAfter looking at the fundamental factors when picking stocks, it is very important that you pick the right broker too! In pursuit of making fortunes in the stock market we forget that choosing a good broker is as important as choosing the stock.  Entering into relationship with brokers without knowing any history or background can create problems in the future. Ideally, before entering into the relationship with the broker we should find out for how long a broker has been in this business, we should determine the level of expertise to manage our portfolio. However, in many cases investors do not have broker’s complete information; this can turn out to be a huge mistake. Just like before investing in a particular stock we check company’s financial statements, investigating broker or brokerage firm’s credibility is also important.

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Fundamental Factors to Consider when Picking Stocks- Indentifying Market Strengths

S&P 500 futureAs an investor it is always easy to say what the market did in the recent-past, say 3-6 months ago; you are also able to analyze the reasons behind the upward and the downward movements of equity market. But if you have to predict the stock market trend for present trading day that is, today, then there are several methods which can help us in gauging the mood of the stock market. There are various indicators through which investors, traders and brokers can predict the stock market trend for the day.

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Fundamental Factors to Consider when Picking Stocks- The Sound Company and Working

capitalIn the previous article, we looked at the concept of economic value added. We will now take a look at another fundamental factor very often overlooked by investors when picking stoke.

Capital

We have heard on numerous occasions that for any business, customers are the king. Similarly for any smooth functioning of business be it manufacturing or service industry cash is the most important thing-a lifeline. It does not matter how strong the company has a marketing team, sales team or efficient is the operations and supply chain of the business; if the company is unable to generate sufficient cash through its operation and has negative working capital then invariably that company will have excessive borrowings (debt) from the market in order to finance its operation, investments and growth.

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Fundamental Factors to Consider when Picking Stocks- Economic Value Added

Economic value As an investor we are always curious to find detailed information about companies. Usually, we judge a company by looking at its profitability, revenues, growth potential, and through comparable statistics of different companies. We also apply advanced technical analysis and fundamental analysis (ratios etc).  However, may investors, whether novice or experienced, often do not consider the method called economic value added. Economic value added is also one of the useful methods that help us in identifying whether the company is intrinsically profitable. This method is not only useful for investors but also for company’s management and consultant as it gives them true and accurate picture of economic profit created by the company.

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Understanding Different types of Mergers, Acquisition and Takeovers

types of Mergers, Acquisition and TakeoversMergers, Acquisition and Takeovers are an integral part of a company’s strategy and can have a huge impact on stock prices. Today more and more companies are looking to go global and increase their market share. Mergers, Acquisition and Takeovers are an effective way of achieving these goals and this is why there has been a phenomenal growth in global M&A activity.

There are companies which look to grow only through acquisitions. Companies like Cisco in the U.S.  have an acquisition team in place to hunt for good acquisition targets. Mergers and Acquisition is also called an inorganic way to grow. Theoretically Mergers and Acquisitions grow or enhance shareholder value, however historically most of the mergers and acquisitions have been unsuccessful and destroyed shareholder value.

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Determinants of Exchange Rates:

Determinants of Exchange RatesExchange rates are determined by the demand and supply of a particular currency as compared to other currencies. There are numerous factors that determine the exchange rate between two countries. In this article, we will look at some of these factors and see how they affect the exchange rate.

Inflation:

Inflation is one of the major factors that affect the exchange rate.  Theoretically a low inflation rate scenario will exhibit a rising currency rate, as the purchasing power of the currency will increase as compared to other currencies. A classic example of this is Yen, the Japanese currency, which has gone through a decade of low inflation and with that the Yen has also appreciated.

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Credit Ratings and the Money Market

Credit RatingsRating agencies are private firms that offer opinions about the credit worthiness of borrowers in the financial markets. The issuers of treasury bills, agency notes, local government notes and international agency paper usually obtain ratings before bringing their issues to market. Some commercial paper issues are rated, although in many cases the ratings agency expresses its view of an issuer’s multi-year commercial program rather than judging each issue separately. Participants in interbank lending and buyers of bankers’ acceptances look for a rating not of the particular deal, but of the financial institutions involved.

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Analyzing Sectors-Part 5

Analyzing Sectors-Part 5Finally, we will take a look at the automobile sector. Again, in any fast growing economy, this sector offers great investment opportunities.

Analyzing Automobile Sector

Just like the utility industry, and the biotechnology industry, the automobile industry is also very capital intensive. The industry is highly cyclical; that is, it highly vulnerable to changes in the global economy. During the boom time, automobile industry performs better as people have disposable income to spend on luxuries; conversely during the time of economic downturn, the automobile industry struggles as people just look to spend on daily necessities. Similarly automobile sales largely depend on consumers’ trends and tastes. Consumer segment is the revenue driver in the automobile industry. Hence, before investing in this industry, investors should always look at the consumer confidence index.

Some key ratios that help in evaluating the auto industry are as follows:

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Analyzing Sectors-Part 4

Analyzing Sectors-Part 4In this article, we will take a look at the retail sector. In any fast growing economy, the retail sector offers great investment opportunities.

Analyzing Retail Sector

A business which sells goods and services to consumers falls under the Retail sector. Broadly, retail sector includes departmental stores, discount stores, and specialty stores. In the recent past, retail companies have seen sweeping changes, especially in the emerging markets. Typically, emerging markets were once dominated by corner shops, family owned businesses; but now the market is seeing takeover of these businesses by large departmental stores. One of the main reasons behind this change has been that big retailers are able to spend heavily on distribution chains thereby increasing sales volumes and minimizing the cost.

Some key ratios that can help in evaluating retail business are as follows:

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Analyzing Sectors-Part 3

Analyzing sector 3In the previous article, we looked at the utilities sector. We will now focus on a sector that can offer some great returns; Biotechnology.

Analyzing Biotechnology Sector

In biotechnology, biological processes are used in the manufacturing or in the development of a product. With the help of biotechnology plenty of areas can be explored; it can be used in food altercations, human and animal health care, pharmaceuticals, research in genetics. As research and development costs are extremely high in biotechnology industries, the general trend around the world has been small firms partnering with large companies. According to many industry analysts and experts, biotechnology is the future of health sciences.

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