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Fundamental Analysis |
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Choosing what stocks to buy and when to buy them involves following a strategy. One of those strategies is known as fundamental analysis. Traders who use this methodology focus not on the stock, but on the company behind the stock. They determine if the stock is undervalued, overvalued or trading at fair market value by looking at fundamental aspects of the company’s worth. This is sometimes referred to as determining the company’s intrinsic value.
There are several steps to determine a company’s intrinsic value. The trader begins with an analysis of the current and future economic health of the company. Economic health is then evaluated against anticipated changes in both short and long-term interest rates. The trader also needs to examine the sector the company is part of. When examining a sector, the trader is looking to see the maturity of the sector, i.e. is this an industry that is relatively new, or does it have a performance history? The next evaluation is determining what part of the cycle the sector is in, meaning how long has it been profitable/unprofitable. Chances are if the sector has been profitable for a long time, analysts expect a decline in the not too distant future.
The last part of the analysis is to examine the individual firm for factors that give it a competitive edge. The ability to control costs, a good distribution system for products, expertise in the use of technology, experienced management, and the ability to accurately forecast revenue are all considered signs that the company has a high intrinsic value and the stock is worth purchasing. A trader who uses this fundamental analysis approach employs it as part of a larger strategy of investing in a stock long-term, which is commonly referred to as "buy and hold".
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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© ForexCenter.com, 2005, All Rights Reserved
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History