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Stock Analysis: Technical and Fundamental Analysis

Stock Analysis: Technical and Fundamental Analysis. By Jiroj Buranasiri, CFA. I. Technical analysis II. Fundamental analysis. I. Technical analysis: outline. A. What is it about? B. Analysis C. Sources of information E. For further study. A. What is it about?.

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Stock Analysis: Technical and Fundamental Analysis

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  1. Stock Analysis: Technical and Fundamental Analysis By Jiroj Buranasiri, CFA

  2. I. Technical analysis II. Fundamental analysis

  3. I. Technical analysis: outline A. What is it about? B. Analysis C. Sources of information E. For further study

  4. A. What is it about? • Technical analysis focuses on demand & supply by studying the movement of price and volume. • Its objective is to find market trend and how long the trend will continue to make investment decision – Buy, Hold, or Sell.

  5. A. What is it about? • Trends: • up-trend, • down-trend, • or sideway (sideway-up, sideway-down)

  6. B. Analysis • Graphs: Bar Line Candle

  7. B. Analysis • Graphs: bar, line, candle • Techniques: • Moving Average (MA) • Exponential Moving Average (EMA) • Moving Average Convergence/Divergence (MACD) • Money Flow Index (MFI) • Rate of Change (ROC)

  8. B. Analysis • Techniques: • Relative Strength Index (RSI) • Stochastic • Volume • Volume +MA • William % R • Parabolic • Bollinger bands

  9. B. Analysis • Techniques • Fibonacci • Dow theory • Elliot wave

  10. Remarks • Price moves in trend. • History repeats itself. • Volume normally goes with trend. • Volume typically leads price during bull move. • Rising price with falling volume is abnormal.

  11. C. Sources of information • Efinancethai, • Reuters, • Bloomberg, • Etc.

  12. C. For further study • Book • Technical Analysis: The Complete Resource for Financial Market Technicians by Charles D. Kirkpatrick and Julie R. Dahlquist, FT Press, • The Investor's Guide to Technical Analysis by Curt Renz and Curt Renz, McGraw-Hill, • Etc. • Website: http://finance.yahoo.com, http://stockcharts.com

  13. II. Fundamental analysis: outline A. What is it about? B. Analysis C. Sources of information D. For further study

  14. A. What is it about? • Finding fair value of stocks. • Objective is to check if market price is cheap, fair, expensive for investment – Buy, Hold, or Sell or to explain the change of market price.

  15. B. Analysis: stock valuation process 1. Understand firm and stock’s nature 2. Forecast 3. Choose valuation method 4. Make decision

  16. 1.Understand firm and its stock’s nature • From company itself • Financial statements, • IR • From other sources • Research paper, • Firm’s competitors • Etc.

  17. 2. Forecast • Make assumptions • Information, information, information

  18. Information’s issues • What information is relevant? News concerning risk and return • When will it come out?

  19. Getting start (use consolidated) • Restate statements and work from restated statements. • Analyze relevant data and forecast: revenue break-down, cost break-down

  20. Analysis: • Top down • Bottom up • Top down and bottom up

  21. Top down / Bottom up • Top down: • Economy -> industry -> firm -> stock • Globalization – impact. • Bottom up • Firm -> industry -> economy • Top down and bottom up: • Economy <-> industry <-> firm <-> stock

  22. Economy • Economic variables: GDP growth rate, unemployment rate, etc. • Economic life cycle: changing • Domestic & international: globalizationimpact

  23. Industry • Porter’s 5 forces • Boston matrix: star, dog, cash cow, question mark • Change in external factors: social, regulations, consumer’s taste, etc. • Industry life cycle: sun-rise, sun-set

  24. Company • Management quality • Accounting – clean, dirty • Business nature - income, cost, margin’s volatility, key success factors, position, strength, weakness etc. • Financing • Growth opportunity

  25. Company • Dream & do

  26. Remarks • If the success (failure) is consistent or temporary. • Past success doesn’t guarantee future success.

  27. Understand the stock’s nature • Major investors • Sensitive to foreign fund flows • Defensive or cyclical • Etc.

  28. 3. Choose valuation methods • Choosing criteria: • Characteristics of firm • Data: availability, quality • Valuation methods • Discount cash flows • Price multiples

  29. Discount cash flows • Discount rate • CAPM, APT • Cash flows • Dividends, Free cash flow for firm (FCFF), Free cash flow for equity (FCFE), Residual income (RI) • Growth rate • = ROE x b

  30. Price multiples • Price Multiples • Link to competitors, industry, past • Link to company’s fundamentals – discount cash flows

  31. Price multiples: PE multiple • Trialing PE (Current PE) Po/E1 = (D1/E1)/(r-g) = (1-b)/(r-g) • Leading PE (Forward PE or Prospect PE) Po/Eo = {[Do(1+g)]/Eo)}/(r-g) = [(1-b)(1+g)]/(r-g)

  32. Price multiples: PBV multiple • Book Value is unlikely to be negative. • Compared to earnings, book Value is less manipulated. • PBV = (ROE-g)/(r-g)

  33. Price multiples: P adj BV multiple • Adjusted BV = BV – (NPV – Acc. Provision)

  34. Price multiples: PS multiple • No negative sales • Sales is less likely to be manipulated. Po/So =(Eo/So)(1-b)(1+g)/(r-g) • But sales might not mean profit. (No information on cost structure)

  35. Price multiples: PCF • Cash flow • EPS + non-cash charge • CFO • FCFE • EBITDA • Less manipulation

  36. 4. Make decision • Buy (undervalued, buy, trading buy, strong buy) • Sell • Hold

  37. Some technical termsin fundamental analysis • ARPU • GRM • Baglog • BDI • NIM • L/D ratio • CAR • CASA • CAPEX • OPEX • P&L • B.E.1.1

  38. C. Sources of information Anything affecting company’s earnings (growth, volatility) • Newspaper: local (Bangkok Post, The Nation, Bangkokbiznews, etc.) and international (The New York Times, Financial times, etc.) • Internet: www.settrade.com, www.set.or.th, www.sec.or.th, www.bot.or.th, www.nesdb.go.th, www.worldbank.org, www.imf.org, http://www.efinancethai.net, etc.

  39. C. Sourcesof information • Reuter, Bloomberg, Setsmarts, E-financethai • Analyst meeting, opportunity day • Company presentation

  40. For novice • What data? To under stand a company’s nature, start with 56-1 form, company’s presentation, investment analysis paper, opportunity day meeting and company’s annual report • Where to find? • When it will be release?

  41. Financial data (SEC, SET) • Why SEC, SET? To be fair to public, companies should not provide financial data to a particular investor (or group) before public.

  42. SEC_ financial statements

  43. SET_ latest news

  44. Opportunity day_ meet company’s management team

  45. Company’s presentation • From company’s website.

  46. Investment research paper

  47. Where to find research paper? • Brokers

  48. Where to find research paper? • Free? • Free? • Free? • Free? • Free?

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