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Profit by Using Fundamental Analysis

A wise long term investor uses fundamental analysis in order to profitably anticipate his return on investment. To profit by using fundamental analysis an investor looks at the financial statements of a company, considers its management, and appraises how strong a position the company holds in its market sector. Investors profit in using fundamental analysis by keeping track of economic indicators such as the gross domestic product, non-farm payroll reports, interest rates, and the strength of the US dollar versus the currencies of trading partners.

What is Fundamental Analysis in Stock Investing?

The point of using fundamental analysis in stock investing is to predict future earnings and therefore the stock price in the months and years to come. Investors profit by using fundamental analysis to ascertain the intrinsic value of a stock. This is the forward looking income stream of a company discounted to current dollars. Finding the margin of safety of a stock is useful as well as it gives the investor a clue as to how well a company can ride out a recession or other adverse event. Knowing intrinsic stock value tells the investor if a stock is under or overpriced. Knowing margin of safety tells the investor if the stock will survive the next economic downturn. Many investors look at the gross domestic product to see how well the economy is doing. However, a smart investor will profit by using fundamental analysis of R&D efforts, the ability of the company to reliably bring profitable new products to market, its ability to contain costs, and its payments of dividends along with historic ability to raise stock price year after year.

In the USA and Overseas

The ability to compete in expanding markets outside of North America is becoming an increasingly important factor for reliable profits for US based companies. Thus an investor can profit by using fundamental analysis of foreign markets, GDP, interest rates, monetary policy, and general opportunities. Learning how to invest in companies with a large foreign customer base may require time and patience but may pay off handsomely as foreign sales come to exceed domestic sales for many products.

The News of the Day

Learning how to make sense of stock market news is another means of making a profit by using fundamental analysis. The smart investor learns to read the news in context. Having a good sense of the fundamentals of an industry or specific company will serve one well when news of a merger or takeover hits the front pages. What may at first glance seem to be a good idea may be a recipe for disaster and vice versa. Profit by using fundamental analysis and be ready when the news hits the street. All too often the news of the day has to do with the past. However, when a takeover artist buys shares of a languishing US based company investors may want to take note. That is a time to do one’s own fundamental analysis in order to decide if there is a chance of making a profit from taking a company apart or a means of making it more profitable with better management. Prior knowledge lets the investor see the news in the most profitable light and is often the best way to profit by using fundamental analysis.

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