Welcome back from the weekend everyone!
We had a pretty exciting week on the markets last week, and one would suspect nothing less from this week. You never know with a huge earnings week what the market will bring. In a strong upward trend as we are in, solid earnings reports will propel us thru the remainder of this calendar year.
Onto part 5 of our stock selection process. By now we know we need to find market direction (one way or another), leading indexes, leading sectors, and leading groups. Our next step is to find the leading stocks in the leading groups, sectors, and indexes.
As our example for today, we remember that Gold was a hot sector, and had several favorable groups, as our next step in finding a winning stock, we look for the best stocks within a group. We should scour the top 10 stocks of groups that coincide to our sector to find companies with solid financials. Yahoo Finance or Google provide nice analytical tools for comparing the top companies of a group. Let's take a look at two companies from the gold miners group: GG and LIHR. Both companies show a nice Net Profit Margin, but only GG has a strong operating margin and EBITD Margin which from a fundamental perspective make it a stronger company. We would repeat this analysis for 8 more stocks within that group to funnel down to our top companies.
What we are left with is a couple great fundamental companies in strong groups, in outperforming sectors, of strong indexes in an upward trend market.
Tomorrow we draw closer to making the stock selection process complete. Until then, I leave you with a picture that is worth its weight in gold, if you know how to use it.
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