Fundamental analysis - Income, Growth and Value stocks
When picking a stock for investment, fundamental analysis is the method that can be used to determine the long term perspective of a given stock. Using the stock fundamentals can help you get into strong stocks that can be excellent for long term investments.
The basic principle behind fundamental analysis is that the faster a company grows, the faster the stock will increase. The way you can determine if a company is growing is by examining their earnings and sales. For a company to be strong there earnings and sales should both be increasing month after month.
Another important factor you should look at when examining a company's fundamentals is how the company is doing in regards to its peers in its industry. It is very important to pick out the industry leader when searching for safe long term investments.
There are three different types of stocks that all fundamental investors try to pick. These are income stocks, growth stocks, and value stocks.
Income stocks are stocks that do not do much in appreciation, but provide a steady stream of income either by dividends or selling of covered calls.
Income stocks are stocks that traditionally pay high dividends. This investment vehicle is for conservative investors who want the steady investment income provided by these securities.
The dividends are normally paid out once a quarter but can be paid out at different periods depending on the company. They can also be paid out in a few different forms, cash being the most common.
Conservative investors will buy income stocks because they can make money in two different ways. They make you money by paying out consistently high dividends. They also make you money by the simple appreciation of the stock.
Growth stocks are stocks from a company whose earnings are expected to grow at an above average rate. This means that the stock should also grow at a faster rate than the average market.These are stocks are usually outperformers.
Growth Stocks are for aggressive investors. Unlike Value investors who care about the here and now, growth investors care about the future earnings of companies.
The companies that can be considered growth stocks are companies whose earnings are expected to grow faster than the average company.
A Growth stock is in expanding industries. Many will be overvalued based off of their earnings, but a growth investor is trading with the expectation that the company will grow to take care of that problem.
Value stocks are the long term investments that Warren Buffet believes in. These are stocks with good earnings and dividends but the market does not notice them. The stock trades at a value that is far below what the price should be based on the earnings of the given company. These are strong stocks that make good long term investments because they should in theory eventually head up.
Value investing is the process of getting into undervalued stocks. A value investor would get into strong companies whose stock has not been given noticed by the market.
Value investing is basically getting a stock at a discount. To do this you have to figure out how much you believe the stock should be trading at, this price is called the intrinsic value. The intrinsic Value is based off of the earnings, assets, and future growth of the company.
