Fundamental Analysis for Stock Picks

Institutions rely on teams of researchers to conduct Fundamental Analysis for stock picks, ensuring they accumulate the most fundamentally sound stocks for long-term investments.

Institutions are what move stocks. Whether stocks rise or fall often depends on the decisions of large funds managing billions of dollars.

Stocks with outstanding fundamental metrics that are moving out of sound technical patterns are often the top-performing stocks of a cycle.

Individual traders should learn to incorporate fundamental analysis to seek out stocks with institutional sponsorship.

We want to be where the money is, so think like an institution!

What Kind Of Stocks Do Institutions Trade?

Buying and selling billions of dollars worth of stock has to be done methodically. If too many shares are purchased or sold too fast, an institution can begin to make the stock rise or fall rapidly.

When it comes time to accumulate or distribute a large position, a stock’s liquidity will determine how easy it is to trade in or out.

Holding a position for extended periods of time also requires knowledge of a company’s finances. Institutions must ensure that a company makes money (earnings) and grows its sales.

Liquidity Matters

Understanding liquidity is key for investors. Liquidity metrics help determine how easily a stock can be bought or sold without affecting its price, which is vital for institutions managing large portfolios. Here are 3 liquidity metrics:

Market Cap is higher in larger companies, which generally have more Shares Outstanding. With more shares available, it becomes easier for large funds to accumulate stock.

Average Daily Volume tells you how many shares of stock are traded on a given day. Institutions need to accumulate millions of shares to build their portfolios and need to be able to do this without overwhelmingly moving the price.

Dollar Volume differs slightly in that we now factor in the stock’s price. To find dollar volume, multiply the stock price by that day’s trade volume.

A screen with a minimum Market Cap of 2B, an average daily volume of 1M, and an average dollar volume of 30M will filter out smaller companies that institutions would generally avoid.

This simple screen can help narrow your stock selection from thousands to a few hundred.

Growth By The Numbers

By definition, growth stocks increase their Earnings and Sales at a faster rate than their competition—they’re growing. We make money by investing in these stocks.

Earnings Per Share (EPS)

EPS is a simple way to see how much profit a company makes for each share of stock. Earnings should be positive and expanding! Look for stocks that are exhibiting explosive earnings in their current quarterly report.

Sales

Sales refers to how much money the company is making. Where EPS considers income minus expenses, sales simply represent the total income. A company growing its sales and reducing its expenses will eventually see huge growth.

EPS and Sales Before A Big Move

The majority of top-performing model book stocks have many observable characteristics in common. These distinct fundamental traits can be recognized before the stock begins to advance.

Before top-performing stocks began their big moves, most of them displayed:

What’s New?

American entrepreneurship develops exponentially through every generation. Before the expansion of the railroad system, there was a revolutionary stock that impacted a shift in our society.

The automobile forever changed the way people travel. Technological breakthroughs brought electric vehicles, and we are now seeing the development of self-driving software.

Department stores disrupted shopping to a one-stop destination. Now, we can get groceries with the click of a button.

Computers were misunderstood for years while companies developed software, making it easier to work.

We are now witnessing potentially the greatest technological advancement with Artificial Intelligence.

Putting it all together

Thousands of companies are inventing and innovating to help the world by creating the next amazing thing. As companies ultimately compete for market share, you want to be able to focus on the leading stock in every healthy market cycle.

By investing in stocks with excellent fundamentals, you can be sure you are trading alongside institutions managing billions of dollars.

In addition to watching companies that are growing their earnings and sales QoQ and YoY, you want to identify the ones with increasing institutional sponsorship, specifically, the ones that consist of the best-performing funds over at least 10 years.

Frequently Asked Questions