HOW TO PICK GOOD STOCK FOR MEGA PROFIT.
DETAILS PRACTICAL TOOLS IN PICKING VIABLE STOCKS.
1. NEWS: one of the most important factors that enable the reactions of
Investors in any stock market is the news which could be good or bad,
Sentiments, rumor or facts. In stock market around the globe stock prices
Are basically driven in response to the law of gravity that is the level of the
News. It could be on the new management, takeover/merger/acquisition,
Financial report, dividend, bonus etc.
PRACTICALLY, when a company declare good dividend and bonus, investors or shareholders will quickly rush to buy that stock even those that already possess that stock in their CSCS account or in their portfolio will want to buy more in order to partake in the bonus or dividend as a result of this, demand will exceed supply thereby causing hike in share price while existing shareholders will not want to sell but at higher price.
Investors will have keen interest to buys that company’s stock before closure
Date of the registrars and payment date and vice versa.
2. TOTAL NUMBER OF COMPANY’S STOCK: the higher/larger the total number of company’s share, the lower the rate of the EPS [earning per share] and the lower dividend to be shared among shareholders. Company A has 30million unit of shares but made a net profit of N40, 000,000 in its annual report while
Company B has 10million unit of shares but made a net profit of
N20, 000,000 as a result of this Company A’s EPS [earning per share ratio] will be N0.75 while Company B’s EPS [earnings per share] will be N2.00.
Base on this analysis, companies with lower total volume of shares
With good management tend to declare higher or good dividend when
Compared with highly volume of Shares Company.
In the same view, NSE/SEC new rule in order to reduce share price manipulation whereby before any share price can move up or down it must have attain 50,000 units of shares must have been transacted as a result of this policy company with high volume of shares will enable patronization of investors in trading.
3. EXPECTED OR RELEASED FINANCIAL YEAR END/ ANNUAL
REPORT: investors or traders can use this tools to pick viable and highly
Returns stocks because most stocks has season either high, medium or low
price period in which an investor can come in to buy/sell for profit. Investors
Can use quarter performances fact e. g an investor can use 3 rd quarter results
to buy a stock in expectation that the 4th quarter or final annual report of
that company is likely to declare good dividend and /or bonus in which this
will attract other investors to buy after the release of good annual report as a
result of causing the share scarcity or increase in that share price due to high
Level of demand meanwhile existing investors/shareholders of that stock will
not want to sell it but if he/she decides it will be in high price. Released annual report is also a viable tools, the investors has notice and seen the benefit and rewards the company want to distribute to her prosperous Shareholders but base on certain period of time [that is CLOSURE DATE OF
COMPANY’S REGISTRA]. This bountiful rewards will only be given to Investors who can only or have gotten the share before closure date as a result of this, there is possibility of unavailability or scarcity of that share on the NSE Trading floor due to it’s attractive returns to it’s shareholders in a couple of weeks.
4. FIVE YEAR FINANCIAL STATEMENT: investors can also use this
financial tools to check up the healthiness and improvement in the company
by checking past 5years financial records on gross sales/earnings/premium,
expenses, Profit Before and After Tax [PBT, PAT], bonus or dividend history
and forecast it’s future outlook, which can prompt investor decisions to invest
in that company, if there is advancement indications.
5. MARKET CAPITALISATION; this enhance and attract foreign investors
and fund managers to invest in certain sector or stocks because this will
enable liquidity of that company’s share that is ability to easily convert the
unit into cash.
6. QUARTER PERFORMANCES EPS/PE: it is also known as interim result,
A 3-month financial report in which every quoted or listed company is
expected to produce it 4 times in a financial year whereby 1st quarter to be 3month, 2nd quarter to be 6 month, 3 rd quarter to be 9 month while 4 th quarter to be 10 month. Quarter result are provide to the NSE [ Nigeria stock exchange]/SEC Security exchange commission and the public to compare latest quarter result to the previous or last year quarter report e.g. 1st quarter of 2007 to 1st quarter of 2008.
HOW TO USE QUARTER RESULT
1. If a company does not perform well in the two quarter then it shows that it
will try to recover from what ever the problems, is therefore don’t buy
unless there are convincing facts. That is 1 st two bad quarters don’t buy.
2. If a company performs well in the first 2 quarters, it is advisable that if it
shows all indication that it will perform better in the last 2 quarter then go
ahead and buy.
3. If the result of the first quarter is released and is good, I strongly
recommend that you wait for the second quarter result unless the company
has always shown solid performance and still promise to do so.
4. Quarterly results suggest a great deal if the company will be giving
dividend or bonus, because if the company performs perfectly well in 1 st
quarter and 2nd quarter and 3 rd quarter all things being equal the company
will perform well in the 4 th quarter. Therefore, if 1 st is good, 2nd is good and
3 rd is good then buy because the 4th will be good.
CAUSES OF BEARISH TREND OR PERIOD IN NSE.
1. Mass private placements.
2. Public offer/ initial public offers.
3. Profit taking by investors.
4. Good and impressive quarter or annual results of quoted companies.
5. Other viable and high return investment windows.
6. Regulatory and government policies [NSE, CBN].
7. Major news.
8. Market forces [demand and supply forces].
9. Time and seasons.
WHAT IS EPS & P/E.
EPS means earning per share. It is the operating profit for the year divided by the
total number of share/ outstanding number of company’s equity.
or
profit After Tax [PAT] divide by total number shares. EPS need to change quarter by quarter as operating profit increase but total number of share remains the same.
USES OF EPS.
1. EPS indicates the strength of a stock because it enable to discover if stock
price move up either on fundament or on sentiments.
2. The stronger the EPS the better the stock because it is out of the EPS the
company declare dividend while the remaining goes to reserve.
3. It is one of the best tools to pick stock in bearish period because stock with
high or strong EPS indicates healthiness of such stocks and ability to recover
or appreciate faster when market recover.
4. EPS reveal the abundance benefit that is available in stock even among its
group or sector.
5. EPS is a portion of a company’s profit allotted to each unit of share of the
company’s stock.
6. A company with high EPS indicates that it can pay investor higher dividend
as against the company with low EPS since high returns and dividend serve
as reward a reward for investor for making it capital available for part
running of that company at a point in time.
7. EPS is mostly in kobo.
USES AND DETERMINAION OF PRICE EARNINGS RATIO [P/E]
P/E is determining by dividing current market price by current EPS.
P/E enable an investor to know if a stock is undervalued which is the best time to
buy, overvalued which indicates that the stock is expensive while fairly valued
indicates neutral in price for an investor to buy or sell.
The lower the P/E the better the stock in that sector.
The higher the P/E the expensive the stock in that sector.
Use the EPS table below for example:
Base on the EPS & P/E tables, if we are to pick stock to buy by using EPS & P/E,
take a look at the cheaper or undervalued stock in sectors and pick the one which
has strongest EPS and the rewards to investor will be higher.
TRADERS NOTE.
1. WHAT IS CSCS: it means CENTRAL SECURITY CLEARING
SYSTEM. It is stock account, which is expected to have by every investor in Nigeria capital market operation in order to facilitate effectiveness from switching from manual transaction to electronic transaction. one of the prerequisite for an investor or individual to
possess in order to be able to buy or sell shares in secondary
market.
2. Company listed or quoted on Nigeria Stock Exchange as at
July 2008 are 224 companies and many are proposing to be listed in which you can trade on them for capital appreciation or portfolio build up.
3. WHAT IS IT TRADE ON CAPITAL MARKET: an investor
trade shares for interest which is known as dividend, for
capital gain, bonus. An investor trade its capital for units of
shares or securities while an organization or company
trade/exchange it’s securities for investor’s money. Company
can only run or continue business operation if there is
adequate working capital in which this capital can be
through finance house which is known as DEBT FINANCE
e.g. long term loan, short & medium term loan in which the
company pays interest on the loan either the company makes
profit or loss even if the company default in repayment it can
be enforce by court to set off the debt as a result of this, debt
finance method for sorting working capital is expensive for
an organization. EQUITY OR SECURITY FINANCE is
mostly preferred by the company seeking FUND but only for
PUBLIC LIMITED LIABILITY COMPANY [PLC]. The
individual or an investor contribute fund or capital to
the establishing, expansion and running of the company in
anticipation or hope that the management will declare the
financial status of the company annually and declare or
distribute viable dividend or returns to shareholders or
investors. This method of finance is inexpensive and easy for
quoted company to get fund because the company is
generally owned by the investors either it’s run on profit or
loss the shareholders bears the consequences meanwhile it is
from the profit the management declare dividend not
compulsorily but discretionally at AGM meetings.
4. WHAT IS SECONDARY MARKET: is where you can easily
exchange your unit of shares or securities for cash or cash for
units of shares within 4days.
5. IN PRIMARY MARKET OPERATION:
ISSUE AT PAR/NOMINAL means that the company is
offering the stock to the public at face value e.g. N5.00.
ISSUE AT DISCOUNT means offering to the public at
below face or nominal value e.g. N4.50.
ISSUE AT PREMIUM means that the offer is above face or
nominal value e.g. N5.70.
6. WHERE & HOW TO DISPOSE/TRANSFER YOUR UNIT
IN SHARE CERTIFICATE INTO E-transaction that is
CSCS account in secondary market: you can do so by
contacting Good and efficient stock broker to activate CSCS
account for you and then after you’ve gotten your CSCS
account number, present and order your stockbroker to
either sell off or transfer the unit into your stock account or
portfolio base on your wish.
7. TYPES OF TRADERS :
DAY TRADERS: this type of traders buys and sells within
24hours.
SHORT TERM TRADERS: they are traders who buy and
sell securities within 6months.
MEDIUM TERM TRADERS: they buy and sell their unit
within 6-12month.
LONG TERM TRADERS: they are traders who buy and
sell securities ranges from 12months and above.
8. TYPES OF PRICE MOVEMENT :
SHORT TERM PRICE MOVEMENT: it is the movement
of share price within short period of time usually less than
12months and this can be effected by sentiment trade or good
quarter or annual report on dividends, bonus and more.
LONG TERM RICE MOVEMENT: It is movement of
share price from 12months and above due to some factors like
improvement in earnings, product quality and more.
9. TRADERS SKILL :
SENTIMENT TRADERS: they trade or pick
securities/shares as if in gambles den, that is they trade without
fundament or facts backing the stock prices in which stock can
go down or up. But quality facts will attract investors to demand
or buys good stock thereby enabling rally up again in price if it
goes down.
FUNDAMENTAL TRADERS: this traders make use of
basic facts and back up, to pick or buy stock e.g. company’s
earning, EPS,P/E ,dividend and bonus history and other factors.
TECHNICAL TRADERS: These traders buy or sell
stocks base on price performances in relation to historical price.
10. ELECTRONIC MARKET OF NSE[ E-DIVIDEND,E-BONUS,
E-ALLOTMENT,E-TRANSACTION CSCS]
E-DIVIDEND: it is NSE’s initiative to distribute dividend electronically to shareholders for convenience purpose.
E-BONUS: it is the distribution of free shares to shareholders electronically, into CSCS account.
E-ALLOTMENT: it is the distribution of share allotted to an investor in primary market operation into its CSCS account.
E-MARKET: it is the operation of NSE to transfer and transact securities bought or sold electronically in secondary market operation with CSCS account.
11. BULLISH & BEARISH PERIOD :
BULLISH period is when buyers are on the run because they
are buying the shares of the companies in anticipation of rise in
price and other factors which could enable rise in share prices.
It is advisable for an investor to quickly or early buy the shares
at low/discount price before price rally up.
BEARISH period is when investors are selling the shares to take
profit or due to other factors in which this is the period an
investor can buy or pick good company’s share at low/cheap
prices because if the share price goes up without coming down a
other viable investor will find the share price overpriced or
overvalued as a result of this it is advisable to an investor to buy. shares hat possess good fundamental and facts in the bearish season in order to buys cheaply. Hence an investor should recognize periods for ENTRY and EXIT period because there is possibility of moving up faster. The stock market like any entity is prone to an up season and down season. If you really understand investing, you will agree with me that it’s al about taking advantage of time and seasons. There is no season in the
market that last forever-bull or bear. The smart investor knows
that the way to make money is to buy low and sell high or buy
high and sell higher. So, this is the kind of time to buy but the
question you should ask again is buy what? My response will
simply be buy into companies supported by good results.
12. WHERE YOU CAN GET STOCK BROKERS: individual or
an investor can get stock brokers list with their locations at
any NIGERIA STOCK EXCHANGE branch office in your
states or e-mail their corporate office site:
www.nigerianstockexchange.com