Good morning,
Third-quarter earnings season is starting to kick into full gear and we will see stocks move in reaction to the earnings reports. The upside is that you will have many opportunities to make short-term profitable trades based on earnings surprises, or remain focus on the position trade based on the company’s fundamentals and entering the trade using Koncept Unique Tactical Entering Strategy.
I can remember in my finance graduate class the methods equities are valued. Other then the multiples, one of the most common method advocated by my equities Professor is DCF, i.e. Discounted Cash Flow. DCF uses the required rate of return to discount future free cash flow for equity (FCFE for short) to today’s present value, and dividing this present value with the outstanding number of shares will be the value of each share. The future FCFE is forecasted using complicated regression based on many factors which can influence the company’s top line, which obviously will determine its’ earnings. For many companies, the key factor is still the Gross Domestic Product (GDP) of the country the company operates in, and if the country’s GDP is highly correlated to US GDP, it is important to understand US market.
Which brings to my thought is trailing earnings as reported important to trade the market, or understanding the impact of the factors affecting future FCFE? For intra-day traders, I would presume betting the company’s reported trailing is the tactical strategy. Traders can look for growth companies with majority of the analysts predicting that it will beat the estimated earnings, place a trade and hopefully the share price will gap up once the announcement is made. Well, we can all see that unless you know someone in the company where no one else has, it is very risk if earnings are not as good as estimated. I believe that such short term trades have good potential to make money, but using Options would be a safer bet. Rather than betting with CFDs, buying a call option will enjoy the potential upside gapping while protect the potential downside risk, all for a small premium.
However, I am not a day trader, so I am still buying and selling using my Koncept Unique Tactical System (KUTE). I try to understand the company’s operating cash flows and think very hard about economist forecast of the future economic growth and forecasted GDPs. I buy stocks for their future growth and time my buying using KUTE.
So did my stock do well last night? My Citibank (which I bought months ago and is part of my 30% of the 30-20-50 rules) is doing very well. The stock was up 1.26% to close at $4.83. OSG was down -0.48% to close at $41.61, BHI down -0.73% to close at $45.03, PTEN up 0.12% at $16.66, XTO up 0.62% at $43.76, EIX down -1.91% at $32.83, BKS down -0.73% at $20.47 and CAH down 0.81% at $26.94.
Am I concerned that some of these stocks I bought or recommended are down last night? Not at all, as these are fundamental sound companies and I am a position trader and believe that over the next few days it should be achieving my targeted returns. After all I am still in the money for my overall portfolio.
Have a blessed day.
Francies Cheng
BBus MAppliedFinance
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