Just In: NASDAQ tells investors the best ways to research stocks before buying
NASDAQ, which stands for “National Association of Securities Dealers Automated Quotations,” is the No. 1 screen-based electronic stock market in the US and the second largest in the world in terms of market capitalization. NASDAQ raked in more trading volume than any other stock exchange anywhere. So when the NASDAQ issues guidance or advice, you need to know.
Recently, NASDAQ has published a report, where they have recommended how investors should carry out detailed research before buying a stock. NASDAQ recommends 12 steps to thoroughly analyze a stock, and has called it the NASDAQ Dozen.
What is the NASDAQ dozen?
NASDAQ Dozen is the 12 steps to research any stock. These steps are,
2. EPS or earnings per share
3. ROE or Return on Equity
5. Surprise earnings
6. Expected growth
7. Earnings growth
8. The PEG relationship
9. Industry Earnings
10. Days to cover
11. Operations carried out by persons with privileged information of the company or use of privileged information
12. Measurement of the rise or fall of the stock, or the weighted Alpha
Here is a detailed explanation of the NASDAQ Dozen to analyze a stock.
Income – This one is quite simple and refers to the income earned by the business.
EPS – EPS or earnings per share is a mathematical calculation arrived at by dividing the company’s earnings by the total number of shares. The EPS of a good stock is always high, but also check if the EPS is increasing or not.
ROE – The total profit or loss after taxes and interest, and divided by stockholders’ equity. NASDAQ recommends stocks where ROE has risen for at least the past two years.
Recommendations – What do the experts say about this value? Since they are investigating all the time, it makes sense to find out.
Earnings surprises: Results are announced every quarter and analysts will always forecast earnings or EPS for the next quarter. Now, if you find that the actual EPS is more than what was predicted, then you can conclude that this is a good stock to buy.
Forecast Growth: While it’s important to know past earnings, you should also know what the experts are saying about future growth prospects.
Earnings Growth – This is a projection of expected earnings growth over the next 5 years according to stock analysts.
PEG Ratio: The ratio is obtained by calculating the stock price, the EPS and the expected growth of the company. NASDAQ is asking investors to pick those stocks where the ratio is less than 1.
Industry Earnings: The company’s earnings should be compared to other companies in the industry to get the big picture. If you find that the company is doing better than the industry average performance, then you should go ahead and pick it up.
Days to Cover: How many days will it take for short sellers to cover their positions? Of course, this should be based on the trading volumes of the shares.
Insider Trading: An analysis of whether members of the company are buying the shares or not. If the managers are confident, they will buy the shares themselves.
Weighted Alpha: This is an assessment of the stock’s rise or fall over time.