One Approach to Gathering Information About Potential Stock Investments
Note: Below is a preliminary approach to analyzing a company's stock. Afterwards, you may want to take the next step and assess a company's value using discounted cash flow analysis or some other quantitative valuation method. Please see the "Investing Resources" link at this website for information relating to company valuation.
1) Find Potential Investment-Candidate Companies To Research
Be imaginative! This is an important part of your research on stocks, because if you don't have a good method for initially screening stocks you will spend a lot of time doing the following steps only to determine that the company is not a worthwhile investment.
Analyst Upgrades: See what stocks that professional investors and financial analysts think are on the upswing. Barron's Roundtable
Magazines
2) Get Summary Information On What The Company Does
It's not just a stock your are investing in, it's a company. Know and understand the company, its market, and its competitors.
Company Profile
3) Get Detailed Information On What The Company Does
The more information you have on the company and its future earnings prospects, the more informed any investment decision you make will be.
U.S. Securities and Exchange Commission Filings
4) Find Out The Company's Competitors
The bigger the moat (protection against competitive pressures), the more the company is buffered from competitive pricing pressure which erodes profit margins, sales, and thus profits.
Competitors
5) Find Out What The "Average Joeanne" Investor Is Saying About The Company
Mostly for fun, and possibly, some insight.
Message Board Info
6) Get Up To Date On The News For The Company
Following the company news helps you keep updated on the company's future prospects.
Company News: News stories on the companies from various sources.
7) Get Up To Date On The News For The Industry
Following the industry news helps you stay updated on industry factors which can affect the company's future prospects.
Industry News
8) Find Out What The Company Is Telling Financial Analysts
Not only can you hear what the CEO is saying about the company, but you can also hear the CEO's answers to some tough questions from analysts. This provides more information to assess a company's future prospects.
Company Conference Call Transcripts: Calls occur when the company has important announcements like earnings reports. Typically they are led by the CEO and can be quite informative.
9) Check The Financials For The Company
This is where Warren Buffett lives. For more information on how to utilize financial information, please see the "Investing Resources" link above.
Financial Statements - SEC Filings
10) Find Out The Analysts' Earnings Estimates, The Trend In Their Estimates, And The Number Of Analysts Following The Company
Trends don't always continue, but they are additional information. Also, it is better to get in at the beginning of positive trends then at the end of positive trends. Some traders say that when everyone is bullish on a company, the stock has fewer potential "converts" to create upward pressure on the stock price. That is, they say that when everyone is saying SELL, it may be a good time to BUY, and when everyone is saying BUY, it may be a good time to SELL. Finally, some think that it is easier to find bargains when there are fewer analysts following the company. Their logic is that the fewer the number of analysts following the company, the less thoroughly disseminated is information on the value of the company, and hence the greater is the chance that the stock is trading at a price below its value.
Analyst Earnings Estimates
11) Find Out The Analysts' Ratings (Buy, Hold, Etc.), The Trend In Their Ratings, And Their Price Targets
Trends don't always continue, but they are additional information. Also, it is better to get in at the beginning of positive trends then at the end of positive trends. Some traders say that when everyone is bullish on a company, the stock has fewer potential "converts" to create upward pressure on the stock price. That is, they say that when everyone is saying SELL, it may be a good time to BUY, and when everyone is saying BUY, it may be a good time to SELL.
Analyst Ratings
12) See who is on the board of directors and check their ownership levels.
The board can be critical in creating the appropriate incentives for, and oversight of, company managers. Unfortunately, the Chair of many boards is actually the CEO, distorting incentives and removing oversight. Also, see "Find Out How Many Shares Company Insiders Own And What The Trend Is In Insider Ownership" below.
Board Members
13) Find Out How Many Shares Company Insiders Own And What The Trend Is In Insider Ownership
First, if company insiders have a lot of wealth invested in the company's shares, the insiders have a greater interest in making decision consistent with the long term profitability of the company (rather than only the short term profitability of the company). Second, if company insiders have a lot of wealth invested in the company's shares and are increasingly investing in a company's shares, it is a potential indication that they believe in the long term success of the company. Note that Peter Lynch believes that insider buying is a bullish signal for a stock but that insider selling doesn't necessarily mean much.
Insider Ownership
14) Find Out How Many Shares Institutions & Mutual Funds Own And The Trends In Institutional / Mutual Fund Share Ownership
Some think that it is easier to find bargains when institutional / mutual fund ownership in the company is smaller. Their logic is that the fewer shares owned by institutions / mutual funds, the smaller the pressure on price to converge towards value, and hence the greater is the chance that the stock is trading at a price below its value.
Institutional & Mutual Fund Ownership - Total
15) See how many shares have been sold short. When shares are sold short, the seller is betting the stock will go down.
16) Find Out How The Company Looks According To The Gurus' Investing Methodologies
Different "Gurus" have different approaches to selecting stocks. The below website tells you how how a stock is assessed according to each Gurus metrics / methodology.
Guru Analysis
17) Check Out What The Top Financial Analysts Are Saying About The Stock
Professional analysts are a useful source of information about a company's prospects. However, your goal should ultimately be to make your own assessments based on your own analysis.
18) Check Out The Chart
Some investors, particularly technical traders, like to time their investments based on the chart. Many other investors do not bother with chart analysis and simply choose to buy a stock once they've identified a bargain (a stock that trades at a discount to its value).
Stock Chart
Keeping Up On Your Investments
1) Revisit some of the above websites regularly.
2) If you want, make yourself aware of upcoming earnings announcements.
I'll end with a Bob Dylan quote from his first interview after his Nobel Prize in Literature was announced: "Everything worth doing takes time. You have to write a hundered bad songs before you write one good one. And you have to sacrifice a lot of things that you might not be prepared for. Like it or not, you are in this alone and have to follow your own star."
Now go get some experience!
Good Luck!
1) Find Potential Investment-Candidate Companies To Research
Be imaginative! This is an important part of your research on stocks, because if you don't have a good method for initially screening stocks you will spend a lot of time doing the following steps only to determine that the company is not a worthwhile investment.
Analyst Upgrades: See what stocks that professional investors and financial analysts think are on the upswing. Barron's Roundtable
- Do a google search for "Barron's Roundtable", but you will need a subscription in most cases.
Magazines
- Bloomberg Business
- Forbes
- Fortune
- Yahoo! Finance: For a listing of holdings of mutual funds, click on the ticker of the mutual fund you are interested in and then click on "Holdings".
- Financial Times
- Investor's Business Daily
- New York Times Business Section
- Wall Street Journal
2) Get Summary Information On What The Company Does
It's not just a stock your are investing in, it's a company. Know and understand the company, its market, and its competitors.
Company Profile
- MSN Money: Enter the symbol in the box where it says "Quote Search" and press return. Then click on "Company" on the blue horizontal bar and then "read more" at the end of the abbreviated company description to see the full description.
3) Get Detailed Information On What The Company Does
The more information you have on the company and its future earnings prospects, the more informed any investment decision you make will be.
U.S. Securities and Exchange Commission Filings
- SEC: Search using the name of the company, click on "Documents" next to the most recent 10K (annual report), open up the 10k, and read the first section which describes the company. Note that the 10q is a quarterly report.
4) Find Out The Company's Competitors
The bigger the moat (protection against competitive pressures), the more the company is buffered from competitive pricing pressure which erodes profit margins, sales, and thus profits.
Competitors
- MSN Money: Enter the stock symbol where it says "Quote Search" and press enter. Then click on "Related" on the blue horizontal bar.
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter.
5) Find Out What The "Average Joeanne" Investor Is Saying About The Company
Mostly for fun, and possibly, some insight.
Message Board Info
- Yahoo! Finance: Enter the stock symbol in the search box at the top of the page and press enter.
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter.
6) Get Up To Date On The News For The Company
Following the company news helps you keep updated on the company's future prospects.
Company News: News stories on the companies from various sources.
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter.
- Zacks: Enter the symbol in the box where it says "Enter Symbol" and press enter.
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter.
7) Get Up To Date On The News For The Industry
Following the industry news helps you stay updated on industry factors which can affect the company's future prospects.
Industry News
- Yahoo! Finance: Enter the symbol next to where it says "Get Industry For" and press enter, click on "More Industry News ..."
8) Find Out What The Company Is Telling Financial Analysts
Not only can you hear what the CEO is saying about the company, but you can also hear the CEO's answers to some tough questions from analysts. This provides more information to assess a company's future prospects.
Company Conference Call Transcripts: Calls occur when the company has important announcements like earnings reports. Typically they are led by the CEO and can be quite informative.
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter.
- Zacks: Enter the symbol in the box where it says "Enter Symbol" and press enter.
9) Check The Financials For The Company
This is where Warren Buffett lives. For more information on how to utilize financial information, please see the "Investing Resources" link above.
Financial Statements - SEC Filings
- SEC: Search using the name of the company, click on "Documents" next to the most recent 10K (annual report) or 10Q (quarterly report), open up the 10K or 10Q.
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Income Statement," "Balance Sheet," or "Cash Flow" under the company name.
- Guru Focus (numerous financial metrics available for up to 30 years): Enter the symbol where in the box that says "Enter Ticker" and then press enter. Select the "30-Y Financials" tab then click on "Select a metric" and choose the financial metric you want to see from the drop down menu.
- MSN Money (limited financial metrics available for up to 10 years): Enter the symbol where it says "Quote Search" and press enter. Select the "Analysis" tab then click on "Growth" or "Profitability." Also, select the "Financials" tab just next to the "Analysis" tab.
- Zacks (numerous financial metrics available for up to 5 years): Enter the symbol in the box where it says "Enter Symbol" and press enter, choose the relevant financial metric from the drop down menu at the top of the chart.
- Morningstar1 (financial ratios): Enter the symbol in the box next to where it says "Quote" and press enter. Cick on "Key Ratios."
- Morningstar2 (valuation ratios): Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Valuation."
- Zacks (financial & valuation ratios): Enter the symbol in the box where it says "Enter Symbol" and press enter.
- Morningstar (valuation ratios): Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Valuation" and then scroll down.
- MSN Money (valuation ratios): Enter the symbol where it says "Quote Search" and press enter. Select the "Analysis" tab and then click on "Price Ratios." Also, scroll down and click on "Financial Health" or "Management Effectiveness."
- Zacks (financial & valuation ratios): Enter the symbol in the box where it says "Enter Symbol" and press enter, choose the relevant ratio from the drop down menu at the top of the chart.
- Morningstar (industry comparison); Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Valuation."
- Nasdaq (competitor comparison): Enter the stock symbol in the search box at the top of the page and press enter.
- Zacks: (industry comparison) Enter the symbol in the box where it says "Enter Symbol" and press enter,
10) Find Out The Analysts' Earnings Estimates, The Trend In Their Estimates, And The Number Of Analysts Following The Company
Trends don't always continue, but they are additional information. Also, it is better to get in at the beginning of positive trends then at the end of positive trends. Some traders say that when everyone is bullish on a company, the stock has fewer potential "converts" to create upward pressure on the stock price. That is, they say that when everyone is saying SELL, it may be a good time to BUY, and when everyone is saying BUY, it may be a good time to SELL. Finally, some think that it is easier to find bargains when there are fewer analysts following the company. Their logic is that the fewer the number of analysts following the company, the less thoroughly disseminated is information on the value of the company, and hence the greater is the chance that the stock is trading at a price below its value.
Analyst Earnings Estimates
- Yahoo! Finance: Enter the symbol in the box next to where it says "Go" and press enter.
- Zacks: Enter the symbol in the box where it says "Enter Symbol" and press enter.
- Yahoo! Finance: Enter the symbol in the box next to where it says "Go" and press enter.
- Zacks: Enter the symbol in the box where it says "Enter Symbol" and press enter. See "Magnitude - Consensus Estimate Trend."
11) Find Out The Analysts' Ratings (Buy, Hold, Etc.), The Trend In Their Ratings, And Their Price Targets
Trends don't always continue, but they are additional information. Also, it is better to get in at the beginning of positive trends then at the end of positive trends. Some traders say that when everyone is bullish on a company, the stock has fewer potential "converts" to create upward pressure on the stock price. That is, they say that when everyone is saying SELL, it may be a good time to BUY, and when everyone is saying BUY, it may be a good time to SELL.
Analyst Ratings
- Yahoo! Finance: Enter the symbol in the box next to where it says "Go" and press enter.
- Yahoo! Finance: Enter the symbol in the box next to where it says "Go" and press enter.
- Zacks: Enter the symbol in the box where it says "Enter Symbol" and press enter.
- Yahoo! Finance: Enter the symbol in the box next to where it says "Go" and press enter.
12) See who is on the board of directors and check their ownership levels.
The board can be critical in creating the appropriate incentives for, and oversight of, company managers. Unfortunately, the Chair of many boards is actually the CEO, distorting incentives and removing oversight. Also, see "Find Out How Many Shares Company Insiders Own And What The Trend Is In Insider Ownership" below.
Board Members
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Insiders" and then click on "Board of Directors."
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Insiders," then click on "Insider Activity," then page down and click on "Holding Summary."
13) Find Out How Many Shares Company Insiders Own And What The Trend Is In Insider Ownership
First, if company insiders have a lot of wealth invested in the company's shares, the insiders have a greater interest in making decision consistent with the long term profitability of the company (rather than only the short term profitability of the company). Second, if company insiders have a lot of wealth invested in the company's shares and are increasingly investing in a company's shares, it is a potential indication that they believe in the long term success of the company. Note that Peter Lynch believes that insider buying is a bullish signal for a stock but that insider selling doesn't necessarily mean much.
Insider Ownership
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Insiders," then click on "Insider Activity," then page down and click on "Holding Summary."
- Yahoo! Finance (sorted by name): Enter the symbol in the box next to where it says "Go" and press enter.
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Insiders" and then click on "Insider Activity."
- Yahoo! Finance: Enter the symbol in the box next to where it says "Go" and press enter.
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Insiders" and then click on "Insider Activity."
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter. See "Insider Trades."
14) Find Out How Many Shares Institutions & Mutual Funds Own And The Trends In Institutional / Mutual Fund Share Ownership
Some think that it is easier to find bargains when institutional / mutual fund ownership in the company is smaller. Their logic is that the fewer shares owned by institutions / mutual funds, the smaller the pressure on price to converge towards value, and hence the greater is the chance that the stock is trading at a price below its value.
Institutional & Mutual Fund Ownership - Total
- Yahoo! Finance: Enter the symbol in the box next to where it says "Go" and press enter.
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Major Owners" or "Concentrated Owners."
- Morningstar: Enter the symbol in the box next to where it says "Quote" and press enter. Click on "Owners Buying" or "Owners Selling."
- Nasdaq: Enter the symbol in the box next to where it says "Search" and press enter. Click on "Increased," "Decreased," "New," or "Sold Out."
15) See how many shares have been sold short. When shares are sold short, the seller is betting the stock will go down.
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter.
16) Find Out How The Company Looks According To The Gurus' Investing Methodologies
Different "Gurus" have different approaches to selecting stocks. The below website tells you how how a stock is assessed according to each Gurus metrics / methodology.
Guru Analysis
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter. Note, this gives a scorecard for how appealing an investments is based on metrics associated with different gurus' investing methodologies. Click on "Detailed Analysis" in the box associated with each guru-rating for more information on the specific methodology used for that guru-rating.
17) Check Out What The Top Financial Analysts Are Saying About The Stock
Professional analysts are a useful source of information about a company's prospects. However, your goal should ultimately be to make your own assessments based on your own analysis.
- Institutional Investor Magazine All-American Research Team: Do an internet search for Institutional Investor Magazine's article on the All American Research Team, when you find the article look up the top analyst/s in your industry, then do an internet search with the name of the analyst and the name of the company you are researching. You may then be able to find articles about your company quoting the analyst or possibly even find research reports by the analyst.
18) Check Out The Chart
Some investors, particularly technical traders, like to time their investments based on the chart. Many other investors do not bother with chart analysis and simply choose to buy a stock once they've identified a bargain (a stock that trades at a discount to its value).
Stock Chart
- Yahoo! Finance: Enter the symbol in the box where it says "Go To Symbol" on the top right of the graph and press enter.
- Nasdaq: Enter the stock symbol in the search box at the top of the page and press enter.
Keeping Up On Your Investments
1) Revisit some of the above websites regularly.
2) If you want, make yourself aware of upcoming earnings announcements.
- Zacks: Enter the symbol in the box where it says "Enter Symbol" and press enter. Note that stock prices can move greatly when earnings are announced. If you don't have the stomach for it, you may want to get out before the announcement. However, Peter Lynch seems to feel that if you don't have the stomach for investing, you probably shouldn't be doing it.
I'll end with a Bob Dylan quote from his first interview after his Nobel Prize in Literature was announced: "Everything worth doing takes time. You have to write a hundered bad songs before you write one good one. And you have to sacrifice a lot of things that you might not be prepared for. Like it or not, you are in this alone and have to follow your own star."
Now go get some experience!
Good Luck!