1. Advanced Stock Research
by Matt Ingram
Invest Ed®
All Rights Reserved
Oklahoma Securities Commission
June 2017

2. What Do We Do After We Have a List of Stocks?
After we put together a list of interesting companies, it’s time to do some research.
Where do we go to learn about the business?
Innovation and new products
Macroeconomic trends favor the company.
Profits
Growth

3. Invest in Businesses You Understand
Can you explain what a company does to a third-grader?
Can you explain why you own a company’s stock?
Would you want to own this business if it was not publicly traded?

4. Learning About a Company
Read the annual report—it’s propaganda, but informative.
Investor Relations page
Get your hands on independent research, from a broker or Value Line (available at most libraries).
Beware of recommendations on TV.

5. Financial Ratios
We need to look at the Summary, Statistics, and Analysts pages on Yahoo Finance.
Net Profit Margin = Net Income
Sales
Price-Earnings (P/E) = Stock Price
EPS
Return on Equity (ROE) = Net Income
Equity

6. Price Earnings Ratio Price-earnings ratio (P/E ratio)
current stock price divided by annual earnings per share (EPS)
High P/E stocks are often referred to as growth stocks while low P/E stocks are often referred to as value stocks.
If you buy a high P/E stock, you will be disappointed if it grows slowly.
If you buy a low P/E stock, the market already expects low growth—it’s zero or negative growth you have to look out for!

7. PE/G Ratio
In general, the P/E ratio is higher for a company with a higher growth rate.
Thus using just the P/E ratio would make high-growth companies overvalued relative to others.
It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio (the PEG ratio) is better for comparing companies with different growth rates.

8. So What Numbers Matter the Most?
There is no one number that determines the best stocks.
Some numbers matter more than others.
Growth rates relative to the P/E
Profitability (margins, ROE)
What about the number of competitors and barriers to entry?

9. Characteristics of Stocks I Like to Buy
Earnings growth—compare growth to current P/E, so the PEG ratio matters here.
Margin of safety—if things go wrong, is there a cash or asset cushion? Think about the worst case scenario.
Rising dividends (if it’s a mature firm)

10. Class Activity
You have been given a name of a publicly traded company.
Has this stock been a winner or loser? (versus the market)
What is the profit margin?
What does it sell?
What do analysts expect for growth?
How does the P/E compare to its expected growth rate?

11. An Example of Finviz Screener
Let’s practice using the screener.
And you can show students how to use it.
Suppose I want a firm with the following characteristics.
dividend yield of greater than 3%
market cap greater than $10B
at least 15% ROE

12. Stock Screener Tips You can sort your selections.
You can filter your selections even further.
Look out for crazy numbers.
Always verify the numbers for your selections.