A Note on Technical Stock Analysis

Technical Analysis

1. Support and Resistance Levels: derived from human behavior
   
2. Resistance levels are found at previous highs and previous lows: when a stock goes above highs; it has "broken out". When a stock goes below lows; it has "broken down"
   
3. Conservative clients should stay away from volatile stocks
   
4. Stock Traders thrive on volatility for buying and selling opportunities
   
5. Helps establish psychology influences of stock performance

Technical analysis tends to only be useful for making short term decsions such as establishing entry and exit points in the near term. For investors with a long term focus the emphasis should be on Fundamental Analysis.

Another use of technical analysis is for options pricing. When looking at the (VIX) - Stock Market Volitility Index - an options trader can establish whether option premium levels are good or bad. Good premiums are usually afforded by high volitiliy and Bad from stability.

Most Important Qualitative Analysis For Stock Picking

Qualitative Analysis to pick the "best stocks"

The Key to winning stock picks is an investors ability to seek outstanding companies at sensible prices, not mediocre ones at bargain prices!


The top 13 Questions to use to find Red Hot Stocks:

1. What is companies primary business?
   
2. Do you understand that business?
3. Are future results predictable?
   
4. Is the company a leader (number one or two) in its industry?
5. Does the company have a record of generating substantial free cash flow? (allows company to with stand slumps, seize investment opportunities, increase dividends, or repurchase shares)
6. Does the company produce an attractive product(s) or service(s) that are needed and likely to be needed for a long time in the Future?
7. Lack competition?
8. Low overhead?
9. Portable?
   
10. Free of regulation?
11. Management competent?
12. Likely to become better, not just bigger?
13. Can you buy it below intrinsic value?

Basic Stock Evaluation

How to do a Basic Stock Evaluation

There are a few common variables to assess when evaluating a stock:

1) Profitability: Does the company make a lot of money?
2) Growth: past, present, future—major driver of stock price
3) Financial Health: Strong Balance Sheet—the company can weather a storm.
4) Value: the stock is available at a discount (on sale) compared to its historical value, compared to its competitors, compared to its intrinsic value.

1) Profitability: (Return on Capital and Return on Equity) (ROC) & (ROE)

Return on Equity (ROE)
(ROE) Low numbers (> 12%), especially if declining, (Look elsewhere)
Steadily increasing ROE speaks well of company management.

Measure of profitability
Also indicates internal growth potential (ability to self-finance growth without borrowing money or issuing new common shares)

2) Growth:
Earnings and Sales Per Share (EPS)
Primary determinant of share price movement
Rapid and consistent growth is highly desired
(harder to manipulate through accounting practices than earnings)
Look at Value Line Charts (visual of cash flow growth)
issue of more common stock (dilutes EPS)

Dividend Growth
Some companies pay out too much in a good year and then reduce them in a bad year (can hammer stock)

3) Financial Strength
Capital Structure: Excessive debt? Shareholder risk increases with the proportion of debt in a company’s capitalization
A company with zero debt can’t go bankrupt!
(Free Cash Flow Per Share): Cash Flow – (dividends + Capital spending): Capital Spending requirements that deplete CF over long haul is bad, Short term good.

Long Term Debt:
Examine long-term debt load in terms of absolute numbers and its trendàstable or declining trend suggests good financial health

Current Position
To asses solvency: pay attention to cash and marketable securities; monitor receivables closely. Receivables increasing at rate faster than sales (perhaps some money owed to company is not being collected)
Inventories: should not grow faster than sales (Red Flag)

4) Value:
High/Low
The valuation of a stock relative to its own history: P/E, Price/Cash Flow, Price/Sales, Price/Book Value compare past 5 years (Watch out for cyclical companies)
The valuation of a stock relative to others in its peer group: compare to see if stock is above of below where it traditionally sites in terms of the entire market of stocks
Quickest way to evaluateà compare cash flow line (the value line) or earnings line to see if company is above or below the line (stocks at or near line may be undervalued)

Best Way to Find Hot Stocks

The Best Way to Find Hot Stocks is to do some research. Once you have made a list of stocks you are interested in it is beneficial to do a full analysis of each company or get someone with more knowledge of investments such as an investment advisor to carry out the rest of the research.

The Best Place to research stocks for initial discovery is through Research Reports, Newsletters, Magazines, and investment blogs.

There are many good sources to discover stocks: Investors Digest, the Money Letter, The Money Reporter, the Zweig Forecast, The Economist, Wall Street Journal, etc.

The newest method to find great stocks to invest in is to search blogs. Google Search: Investment Advice Blogs -- and you will find a number of great blogs listing hot stocks and good opinions about the stock market in general.

Another place to look for stocks to invest in is through Annual Reports and Broker's Packages. You can usually get these by phoning up any public company and asking to be sent a 'Broker's Package'. Do note that these are usually glossy sales packages that make the issuer look as good as possible. Make sure you look at the Auditors notes at the end of the Annual reports for 'juicy details'.

The common element in all of this research is that once it is printed it is old news and the future is anybodies guess. You can make more informative decisions about the future by doing your research however. So if you want to take the luck and gambling aspect out of investing do your homework. You can never eliminate all of the risks from the stock market but you can significantly improve your chances of success.

Investment Theory

Investment Theory

Modern Investment Theory or Modern Portfolio Theory can become quite complex; however, the basic theory of investing revolves around a couple of key concepts: capital is a scarce resource, and return is a variable of risk. In other words, money available for investment is not infinite so people are willing to pay to borrow it and generally, the greater the risk associated with an investment, the greater the potential rewards.

The goal of portfolio theory is to diversify your investments in a way that will maximize your returns while minimizing the risks associated with those returns. This is done by investing in a number of different investment vehicles as well as investing in a number of uncorrelated/unrelated industries.

For example,
40% Fixed Income (bonds, debentures, commercial paper), 40% equities (stocks), 15% cash (GICs, term deposits, savings account), 5% derivatives (options, futures)

Further, within these fields your investments should be diversified through unrelated sectors:
Resource, Financial, Technology, Health Care, Industrial, etc.

This is not an exhaustive list but a very basic outline. Each individual is faced with a unique set of qualities that will effect how much they should invest in certain sectors and how much they should invest in each type of security.

Let's Talk Equity

Let's Talk Equity

When discussing Equities in North America we are really focusing on stocks. Owning a stock will provide you with partial ownership of whatever company that stock is attached to and will entitle you to certain rights with regard to that company; however, the exact details of the rights given will depend on the type of stock.

There are many different forms of stock that trade in the equity markets but there are two basic types: common shares, and preferred shares.

Common shares are the most abundant and commonly held form of stock—hence the name. Generally, common stock has voting rights in corporate decisions, and may receive dividends when declared by the company.

Preferred shares are the second most abundant. These shares have priority over common stock in the distribution of dividends and also take a priority claim to assets if a company faces liquidation due to bankruptcy. However, these shares usually have no voting authority and may be restricted to a stated dividend amount. Essentially, this could mean that if an extra dividend is declared, the preferred shareholders may not participate.

How is stock issued?

The basic method of stock issue results when a company files a prospectus with the local securities commission. Once approved, an initial public offering (IPO) is granted and the company will sell the stock to the public. Usually, the IPO is sold either totally or partially to the underwriters (companies or persons that advise the company on the offer) and these underwriters may sell directly to the public or hold the stock. Most of the time, the underwriting firms are offered the stock at a small discount to compensate them for risks that they may have taken on and compensate them for advising on the issue. This places the stock in the primary market (the market of first sale).

Once the initially sale has occurred, all subsequent sales will occur in the secondary market. This market is what we know as the stock exchanges: NYSE, Nasdaq, TSX, CVE, etc.

Buying stock on the exchanges is very simple these days. The only requirement is that you have an account opened with a brokerage firm whether it is with a bank subsidiary, financial institution or online brokerage.

Top 6 Stock Picks: Oil and Gas

Top 6 Oil and Gas Stock Plays:


Top 6 Stock Picks: Oil and Gas

1) Cyries Energy: Formed in July, 2004 as a result of the merger between CEQUEL Energy Inc. and Progress Energy. The company is a high-growth junior exploration company and operates in the greater Peach River Arch Area of Alberta and targets medium-depth, multi-zone prospects mainly. Management currently owns about 19% of the shares.

Rating: Strong Buy

For more information about this company visit http://www.andrewjohns.ca/EN/main/299/317/866/researchfocus_cys.html where you will have access to some of the latest research reports for free.

2) Duvernay Oil Corp: Trades a premium cash flow multiples compared to its direct competitors. This company is a high-growth intermediate company that focuses on drilling multi-zone wells targeting Triassic and Cretaceous sandstones in northeast BC and northwest Alberta. Management controls about 20% of the stock.

Rating: Strong Buy

For more information about this company visit http://www.andrewjohns.ca/EN/main/299/317/866/researchfocus_ddv.html where you will have access to some of the latest research reports for free.

3) ProEx Energy: Just like Cyries Energy, ProEx formed in July 2004 from the merger of Progress Energy and CEQUEL Energy. ProEx Energy operates mainly in northeastern British Columbia and is focused on full-cycle exploration and development. Management controls roughly 30% of the stock.

Rating: Strong Buy

For more information about this company take a look on Google Finance under ticker: PXE.TO

4) Suncor Energy: Suncor is a large Canadian integrated Energy company operating in the Oil Sands of Alberta and Saskatchewan. The company is focused on Oil Sands, Natural Gas, Energy Marketing and Refining. This company has experienced a great upward price trend linked to its ability to grow.

Rating: Buy

For more information about this company visit http://www.andrewjohns.ca/EN/main/299/317/866/researchfocus_su.html where you will find recent research reports by Raymond James Financial free of charge.

5) Talisman Energy: Talisman Energy is an independent Canadian based oil and gas company involved in exploration, development, production, transportation and marketing of crude oil, natural gas and natural gas liquids. This company operates throughout North America, the UK, Europe, South East Asia, and North Africa.

Rating: Buy

For more information about this company visit http://www.andrewjohns.ca/EN/main/299/317/866/researchfocus_tlm.html where you will find Research Reports by Raymond James Financial Free of charge.

6) TriStar Oil & Gas: Was formed in 2006 form the merger of StraPoint Energy Trust and Acclaim Energy Trust The company is focused on acquiring producing properties and drilling to exploit the undeveloped land. TriStar operates in Alberta and Saskatchewan.

Rating: Buy

For more information about this company visit google finance and search TOG.TO



You should not buy any of these stocks without first consulting a financial professional to determine whether the risks associated with each would be beneficial or resonable for your own portfolio.