STOCKS AND THEIR NATURE

 

Today we learn about stocks and their nature. Let’s begin

[Company don’t stay in the same categories forever]


Fast growers can lead exciting lives, and then they burn out, just as human can. They can’t maintain double digit growth forever, and sooner, and sooner or later they exhaust themselves and settle down into the comfortable single digits of sluggards and stalwarts.

Advance Micro Devices and Texas Instruments, once champion fast growers, are now regarded as cyclicals. Cyclicals with serious financial problem collapse and then re-emerge as turnarounds. Chrysler was a tradition cyclical that almost went out of business, become a turnaround then got turn around and become a cyclical again. LTV was a cyclical steel company, and now its turnaround.

McDonald’s is a classic fast grower, but because of the thousands of outlets it either owns or is repurchasing from the franchises, it could be a great future asset play in real estate.

 

Separating the Digitals from the Wal-Marts

 If you can’t figure out what category your stocks are in, ask your broker. If a broker recommended the stocks in the first place, then you definitely ought to ask, because how else are you to know what you’re looking for. Are you looking for slow growth, fast growth, recession protection, a turnaround, a cyclicals bounce, or asset?

There is no point is treating a young company with the potential of Wal-Mart like a stalwart, and selling for 50% gain, when there is a good chance that your fast grower will give you a 1,000 percent gain. Shaky companies in cyclical industries are not the ones you sleep on through recessions.

 

Finding Perfect Stocks

 



Getting the story on a company is a lot easier if you understand the basic business.

There is Thirteen Point That help you to choose perfect stocks:




1. It Sounds Dull-Or Even Better Ridiculous

The perfect stock would be attached to the perfect company, and the perfect company has to be engaged in a perfectly simple business, and the perfectly simple business ought to have a perfect boring name. The more boring it is the better.

 

2. It Does Something Dull

I get even more excited when a company with a boring name also does something boring. Crown, Cork, and Seal makes cans and bottle caps. What could be duller than that? You won’t see an interview with the CEO of Crown, Cork, and Seal in Time magazine alongside an interview with Lee Iacocca, but that’s a plus. There is nothing boring about what’s happened to the shares of Crown, Cork, and Seal. I already mention Seven Oaks International, the company that processes the coupons that you hand in at the grocery store.

A company that does boring things is almost as good as a company that has boring name, and both together are terrific. Both together is guaranteed to keep the oxymoron’s away until finally the good news compel them to buy in, thus sending the stock price even higher. If a company with terrific earning and a strong balance sheet also does dull things, it gives you lot of time to purchase the stock at a discount.

 

3. It Does Something Disagreeable

Let’s understand it with example

Safety-Kleen goes around to all the galas station and provides them with a machine that washes greasy auto parts. This saves auto mechanics the time and trouble of scrubbing the part by hand in pail of gasoline, and gas stations gladly pay for service. Periodically the Safety-Kleen people come around to remove the dirty sludge and oil from the machine, and they carry the sludge back to the refinery to be recycled. This goes on and on, and you’ll ever see a miniseries about it on network TV. Like Automatic Data Processing, this company has had an unbroken run of increased earnings. Profits have gone up every quarter, and so has the stock.

 

4.  It’s A Spinoff

Spinoffs of divisions or parts of companies into separate, freestanding entities.

Large parent companies do not want to spin off division and then see those spinoffs get into trouble, because that would bring embarrassing publicity that would reflect back on parents. Therefore, the spinoffs normally have strong balance sheet and well-prepared to succeed as independent entities. And once these companies are granted their independence, the new management, free to run its own show, can cut costs and take creative measures that improve the near term and long term earnings. Here s is list of some spinoffs that have done well.



 


5. The Institutions Don’t Own It, And The Analysts. Don’t Follow It

If you find a stock with little or no institution ownership, you’ve found a potential winner. Find a company that no analyst has ever visited, or that no analyst would admit to knowing bout, and you’ve got a double winner. When I talk to company that tells me the last analyst showed up three years ago, I can hardly contain my enthusiasm. If frequently happens with banks, savings-and-loans, and insurance companies, since there are thousands of these and Wall Street only keeps up with fifty to one hundred. I am equally enthusiastic about once-popular stocks the professionals have abandoned, as many abandoned Chrysler at the bottom and Exxon at bottom, just before both began to rebound.

 

Next part of this post listed as soon as possible

Thanks for your patience

 

 

Congratulation you take one more step towards your financial freedom.

This summary from Book-“One Up On Wall Street”

 

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