What are the information that we need to take into account so that we can know the company better and how can we make use of it?
1. Market Capital: Here we can segregate the stocks whether they are small caps, medium caps or big caps.
- Small Caps: These are small businesses that has a market capitalization of less than 20 billion. They are well known basura stocks that can easily be manipulated. These stocks just move once in a while so when you see it moving you can either play a boardlot with it or 2. They are high risk high return in nature. This is only used to satiate your greed and if you are one who wants to jump in every action there is in the market.
- Medium Caps: These are businesses that has atleast 40billion up to 100 billion in Market capital. They are also known as growth stocks and has the chance to be included in the index especially if they are performing well in their respective business.
- Big Caps: Also known as the blue chips. They are companies with more than 100 billion market cap. They are already well-established and are the one that composed our PSE index.
Although they are big it doesn't hinder them from risk as well as stocks are cyclable in nature. It goes up and down on whatever circumstance we are in.
2. Income Statement: We can check how the company is performing in edge.pse.com. To see if the company is profitable check their 3 year earnings if it is increasing or not. Also ask yourself if that business will still be profitable 10 years after. In businesses there are lots of threats that can exist for example the communication industry can have threats because of free platform communications that has now existed like facebook, viber, and some social sites. Before TEL is a very profitable business. Everyone needs to connect with their friends through landline. Now you can connect with them through messenger and it's free. Of course people will always choose the free ones.
3. Statement of Assets and liabilities: Check the assets of the company to see if they are expanding. Check also their liabilities if it is decreasing. Their Assets must be greater than their liabilities. You don't want to invest just so they can use your money to pay the companies' debts.
4. Book to Market Value: Book Value / Market Value. This is to know whether a stock is undervalued or not. The higher it is the more undervalued the shares are. Stocks below book to market value are the overvalued ones. Most blue chips have a book to market of less than .50. It doesn't mean that they are not a good investment but demand for them is to high that it sustain the price.
5. Price/Earnings Ratio: Price earnings ratio is also available on pse.com.ph you just need to list it on the side of your stock. Compare it on the other with the same industry. The lower the EPS the better. Rate it and get the top 3. And invest on it.
6. Management: We need to know who the owner of the company is. Their character and integrity. Are they good managers. Are the businesses that they are holding successful. If this is an IPO you can also base your decisions on this one. Also if you want a long term stock base your decisions with this one as well.
7. Debt over Equity Ratio: These is computed as Total Liabilities / Total Equities. The lower the percentage the better.
8. Free float: Here we can see if the company is going to be dissolved or not. You can also see here the easily manipulated stocks. If a stock that is sleeping suddenly woke up you can play it with just a minimal percentage of your port since it is hard to dispose of such. You need to sell it when buyers are still demanding it and sellers are still waiting for them to get tired of buying. We should always be out before those big sellers can sell down the stocks. Just look at the current SPM and LMG type where in they dump loads of these basuras while people are still buying the hype!
9. Dividend Growth: You can check how much and when the stocks gives their dividends so you can also do some dividend play. Some stocks even if they give dividends doesn't go down in value especially if they just came from a downtrend and has reversed. Like MER last year it gave dividends and still the stock rises to 350 from its low of 245 that time. Also ALCO which is on an uptrend gave stocks but the price never falls that much and rises again. Another is PLC which is also just found its bottom and is on its uptrend. You will have income both on the dividend plus the price appreciation of your stocks. Also foreigns love investing on companies that gives dividends that is one of their requirement on investing on small caps companies here in the Philippines.
This is my fundamental research on 2014. Here we can see that ALCO is undervalued and the EPS is rank 3rd on its industry. Also BLFI which ranks 2nd on its industry and also one of the undervalued as well. If you invest there in 2014 and you can see that the price runs just as low as .1842-.245 then you might 7600% richer now. also BLFI with a price of 1.32-2.42 and now it's currently at 4 pesos you are now 300% richer. But if you can't wait and you want to time it. You can go look at it using technicals.
Fundamentals takes time to do. I usually finish it after 3 weeks of compilation. Sometimes I do it at my free time on December and continues it after I went back home from vacation. After neglecting fundamentals and studying the technicals of the market I realized that it's good to connect the two. Sitting on the right stocks on the right time and on the right trend is the key to make you richer. It is the quality of the trade that is more important than the quantity of the trade. Traders and investors who have the right system, the right mindset, and the proper discipline will always have the edge.
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