Stock picking is the process investors or traders use to analyze and buy stocks or equities. The key to success in stock picking is to know how to analyze stocks based on fundamental and technical analysis through a stock picking screening process. For instance, if you are analyzing small-cap technology stocks, there are literally thousands of companies that require a system for analyzing in order to narrow down the list to a more manageable group for closer examination.
I was looking at the chart of priceline.com Incorporated (NASDAQ/PCLN) the other day, as the stock surpassed the $1,000 level. But why would I consider paying so much for a stock when there are cheaper comparables in the same online travel space?
It’s true; there are less expensive online travel stocks than priceline.com. But when you are stock picking, you should look at the comparative valuation and growth metrics, and not simply stock prices. The problem is that many investors will tend to base their stock picking on the share price, but the reality is that determining which stock to buy is not like shopping for goods—you don’t always go for the lowest-priced item. It’s like the old adage, “You get what you pay for.” This also applies to stock picking.
Online travel provider priceline.com beat Google Inc. (NASDAQ/GOOG) to become the first company to break the $1,000-a-share barrier (excluding Berkshire Hathaway Inc.). This is an amazing accomplishment for a stock that debuted at $75.25 on March 31, 1999.
The key to priceline.com is that it was the first company to really drive the online travel segment and innovate its service offering along the way in spite of a growing number of competitors. This is why it is tops in the online travel sector.
Chart courtesy of www.StockCharts.com
Of course, there are competitors such as Expedia, Inc. (EXPE) that you could consider when stock picking, but the company is over seven-times smaller than priceline.com, based on market cap.
Chart courtesy of www.StockCharts.com
Based on comparative valuations, however, Expedia is more attractive, trading at 14.4X its 2014 earnings per share … Read More
The interesting thing about baseball is its similarities to the stock market.
Success in baseball circles around the abundance of statistics, as is the case in trading stocks, but there are major and subtle differences. In fact, the key to achieving stock market success is more akin to pitching than batting.
Let me explain. In baseball, the ultimate goal for every batter would likely be to hit over 0.300—that is three hits for every 10 at bat for you baseball neophytes. Of course, there are exceptions for homerun hitters, unless you’re a Willie Mays—one of the top baseball players in history. In trading, winning in only 30% of your trades isn’t considered stock market success—it would quickly send you to the sidelines or the poorhouse.
Stock market success is more like pitching. A pitcher who wins 65% of his starts would win about 21 games based on 32 starts. Winning at a 70% win rate would equate to 22 games, and possibly a Cy Young (top pitcher) award for the mantelpiece. In trading, if your win rate was 65% to 70% and you cut your losers, you would likely achieve stock market success.
The key to stock picking and stock market success is simple—make sure you make more money than you lose. To do this, you need to make sure you cut your losses, while you ride the winners.
Many inexperienced traders often get caught up in … Read More
This is an exciting time of the year, as we near the end of the baseball season with the race to the playoffs heating up. Success in baseball swirls around the abundant statistics, as is the case in trading stocks, but there are major and subtle differences. In fact, the key to achieving stock market success is more akin to pitching than batting.
Let me explain. In baseball, the ultimate goal for every batter would likely be to hit over .300—that is three hits for every 10 at bat for you baseball neophytes. Of course, there are exceptions for the home-run hitters like Willie Mays—one of the top baseball players in history. In trading, stock market success doesn’t equate to winning in only 30% of your trades; this would actually send you to the sidelines or poorhouse quickly.
Stock market success is more like pitching. A pitcher who wins 65% of his starts would win about 21 games based on 32 starts. Winning at a 70% win-rate would equate to 22 games and a possible Cy Young award (top pitcher) for the mantelpiece. In trading, if your win rate was 65%–70% and you cut your losers, you would likely achieve stock market success.
The key to stock picking and stock market success is simple—make sure you make more money than you lose. To do this, you need to make sure you cut your losses and, at the same time, ride the winners.
Many inexperienced traders often get caught-up in the emotional roller coaster by taking profits on the top stocks, while keeping the poor performers and refusing to admit a … Read More
One piece of stock market advice for you at this time—be careful.
Success in stock picking is trading in the right direction, while also making sure you have a defensive strategy should the trade turn against you, and using puts as a hedge.
I see some danger on the S&P 500 chart.
In January, I noted the S&P 500 could test 1,400 this year, writing that how much the index rises will be dependent on the global and U.S. economies. (See “My Market View: A Risky Start to 2012.”)
The S&P 500 is hovering at 1,335 and will need to advance another 4.9% to hit 1,400. Of course, the threat of global and domestic slowing could impede the upward move.
The S&P 500 could fall to 1,180 by the year-end, according to research by the Financial Forecast Center. A break at 1,300 is predicted by the end of August and 1,200 by the end of September.
Following the break at 1,400 in March, on two subsequent attempts at 1,400 in late April and early May, the S&P 500 retrenched and failed to hold.
Since June, the S&P 500 showed three successive higher peaks at 1,363, 1,374, and 1,380. Yet unless we see support at around the 50-day moving average (MA) of 1,332 and 200-day MA of 1,315, the index may falter and head lower towards a pivot point at 1,306.
The moving average convergence divergence (MACD) indicator, an indicator I like to look at, also appears set to be flashing a sell signal; but on the three previous occasions, it managed to hold. The fear is of the … Read More
If you’ve been stock picking the last little while, you know it’s tough just to keep your buck, let alone make one. Stock picking is a lot easier when there’s wind at your back. During the technology bubble of the late 1990s, you didn’t even need to do much stock picking; you could have just bought the NASDAQ Composite. Now, in a slow growth environment, making money from the stock market is a lot more difficult.
Stock picking is a lot harder these days, but that doesn’t mean that there aren’t great companies out there benefiting from the big changes taking place in the U.S. economy. Times might be tough at Saks Incorporated (NYSE/SKS), but things are booming at Ross Stores, Inc. (NASDAQ/ROST) and Dollar Tree, Inc. (NASDAQ/DLTR). Thinking about the retail demographic and weak consumer spending, a great investment strategy was to sell the luxury providers and to buy the discount retailers.
The recent stock market performances of Ross Stores and Dollar Tree speak for themselves. Ross Stores was trading just a bit over $20.00 a share in early 2010; now it’s around $70.00. Dollar Tree was trading at $16.00 a share in January 2010; now it’s at $53.00. Just as simple as it was to buy any big, brand-name technology stock in the late 1990s; some of the best stocks in recent history were discount retailers.
Hindsight is always 20/20, but stock picking in any environment can be as simple as asking: who benefits? In any given time period, some industries do much better than others. The key is to be just in front of the trend, before … Read More
One of the largest electronic retailers in the world, Best Buy Co., Inc. (NYSE/BBY), is at a crossroads. The future is looking bleak, at least according to investor sentiment, for what was once a mighty organization. Large format retailers have been difficult for stock picking as they’ve lost significant market share to online retailers. Consumers prefer to touch the product in the store and purchase the goods at home. Best Buy has been among several large retailers that has tried, and has so far failed, to overcome this hurdle. A great example of these difficulties is when its direct competition, Circuit City, filed for bankruptcy; yet Best Buy was still unable to significantly increase corporate earnings. Other large retailers like Borders Group Inc. have also filed bankruptcy due to the onslaught of online retail. This has led to investor sentiment turning negative toward any large-format, mall-oriented retail stores.
On the heels of continued declines in market share and poor investor sentiment, Best Buy had a recent scandal regarding former CEO Brian Dunn who had an alleged affair with a subordinate. This is yet another sign that management didn’t have the proper focus. Following Dunn’s resignation, the founder and largest shareholder of Best Buy Richard Schulze announced that he is resigning as Chairman of the Board and is interested in selling his 20% stake of the company.
Obviously this is a company deep in turmoil, not knowing what direction it wants to go. While it is announcing the closure of 50 stores and building smaller format operations, most analysts think it’s too little too late, leading to poor investor sentiment. … Read More
I love watching baseball—America’s favorite pastime. Success in baseball also swirls around the statistics, as it does in trading stocks, but there are major differences. In fact, achieving stock market success is more like pitching than batting.
Let me explain why. In baseball, the ultimate utopia for every batter would likely be to hit over .300—that is three hits for every 10 at bat for you baseball neophytes. Of course, there are exceptions for the home-run hitters unless you were Willie Mays—one of the top five baseball players in history. In trading, stock market success doesn’t equate to winning in only 30% of your trades and will likely send you to the sidelines or poor house quickly.
Achieving stock market success is more like pitching. A pitcher who can win 65% of his starts would win about 21 games based on 32 starts. Winning at a 70% win rate would equate to 22 games and a possible Cy Young award (top pitcher) for the mantelpiece. If you can win at around 65% to 70% and cut your losers, you would achieve stock market success.
The key in stock picking and stock market success is simple—make sure you make more money than you lose. To do this, you need to make sure you cut your losses and at the same time ride the winners.
Many traders, including some of the more experienced traders, sometimes can get caught up in the emotional roller coaster by taking profits on the top stocks, while keeping the poor performers and refusing to admit a mistake was made. Sounds familiar?
At this time, stocks are facing … Read More
When you think about speculating in the stock market, everyone wants the same thing: the biggest capital gain in the shortest amount of time. Of course, if it were easy to be a consistent stock picking winner, everyone would be doing it.
I like to approach stock market speculation the same way I would create a portfolio of big-cap companies—by building a handful of holdings. For speculating, I would allocate a certain amount of dollars to the endeavor and slowly build three to five positions, as the opportunities present themselves. And, like a large-cap stock market portfolio, I would be diversified. I wouldn’t put all the money into just one story. Perhaps you might own a couple of mining stocks, a biotech company, and an IT firm. You’ve got to spread it around a bit, because stock picking is mostly a losing game. I’ve said this before and I’ll say it again: at any given time, there are actually very few, if any, really attractive stocks to buy with conviction. You should never be in a rush to go stock picking. There is no urgency in the stock market. Urgency only comes from someone who is trying to sell you something.
In my experience, there’s nothing like a great junior gold miner as a potential focus for the speculator. Mining is an event-driven business (just like biotechnology), but if drilling results score, so do investors. (See The Stock Market’s Next Best Trade Is Shaping up.) Like all resource speculation, the returns are magnified if the underlying commodity is experiencing a bull market. For the most part, good opportunities in … Read More
If you want to see an outstanding performance from a large-cap stock, all you have to do is pull up a long-term chart on McDonald’s Corporation (NYSE/MCD). It’s kind of odd to think that a mature business like burger flipping could be so profitable, but this company has rewarded shareholders tremendously well. This stock market performance should be studied in business schools.
For a large-cap stock and Dow Jones component, McDonald’s has appreciated steadily and with remarkable consistency since 1980. Put a ruler underneath the company’s share price and you’ll see how extraordinary its performance has been. This large-cap stock struggled in 2002/2003, but that’s about it. When the stock market collapsed in 2008 and then hit a low in March of 2009, McDonald’s basically traded flat, just below $60.00 a share. This week, it hit an all-time record high of over $101.00 per share, with a current dividend yield of 2.8%. Not bad at all if you ask me. The stock split seven times since the early 80s and is now due for another split.
A stock market performance like McDonald’s makes me think that bothering with the rest of the stock market is mostly just a waste of time. Financial markets are like a casino where the odds are stacked against you and your win is only the result of someone else’s loss.
I’ve always been a fan of investing in large-cap stocks, especially those that pay dividends. Even though I spend most of my time researching smaller companies, I’ve seen stock market portfolios with a handful of large-cap stocks create a lot of wealth for people. … Read More
The economy might be lackluster and there is a risk of another recession, but the stock market is fairly priced and the outlook for corporate earnings continues to be solid. The gyrations of the stock market are based on fear—fear of a future without growth. Small-cap companies are going to have a more difficult time generating earnings growth over the coming quarters because their operations are more closely tied to the domestic economy. Large-cap companies, such as those in the Dow Jones Industrial Average and many within the S&P 500 Index, are going to keep growing their earnings because of their international operations and a weaker dollar that translates into a better bottom line.
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