Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service Presented by Douglas Gerlach President, ICLUBcentral Inc. Editor-in-Chief, IAS & SCI June 2017 http://www.ICLUB.com 1
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Makers of software & web tools for individual investors & investment clubs. § Toolkit 6 – Most popular software for fundamental stock analysis. ¡ Publishers of 2 investing newsletters: § Investor Advisory Service § SmallCap Informer 2 http://www.ICLUB.com 2
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service 3 http://www.ICLUB.com 3
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service IAS named to Hulbert Financial Digest Honor Roll in 2016 for 7 th Consecutive Year. 4 http://www.ICLUB.com 4
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Newsletter must outperform each bull & bear market cycle over long term. ¡ Honor Roll recipients are more consistent performers: § Go up more than market in bull markets. § Go down less than market in bear markets. ¡ On average, newsletters on Honor Roll outperform those that are not. § Pattern that’s repeated almost every year since mid 1990s. 5 http://www.ICLUB.com 5
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service IAS Performance vs. Market As of April 30, 2017 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 10-year 20-year IAS Wilshire 5000 S&P 500 6 http://www.ICLUB.com 6
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Started in 2012 to address need of investors to find smaller companies that fit long-term style. ¡ Published monthly with 2 small/midsized stock picks w/Stock Studies. ¡ Tracks previous picks until sale is recommended. ¡ For more: www.SmallCapInformer.com 7 http://www.ICLUB.com 7
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service SCI CAR vs. Market As of 6/10/2017 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% YTD a/o 6/10/2017 1/1/2015 - 6/10/2017 SCI S&P 500 Russell 2000 8 http://www.ICLUB.com 8
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service 9 http://www.ICLUB.com 9
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service 1. Buying high-quality, solidly-growing, individual stocks with long-term horizon provides superior returns. 2. Long-term investing reduces drag caused by capital gains taxes & trading costs. 3. Buy-and-hold investing requires lower time commitment than active strategies. 4. Longer horizon helps reduce risk of stock investing. 10 http://www.ICLUB.com 10
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Goal for each stock is doubling in value in 5 years, from: § Capital Appreciation . § Dividends (though not all companies pay). § Price/Earnings Ratio Expansion (from contrarian practice of buying stocks undervalued compared with historical trends). 11 http://www.ICLUB.com 11
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Do not advocate “trading strategy.” ¡ We believe that holding carefully selected stocks over long term produces best results. § No stock follows schedule, always ups & downs in prices. § If original assumptions deteriorate, sale recommended & follow-up discontinued. 12 http://www.ICLUB.com 12
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ For each 10 stocks bought: § 2 will do much better than expected. § 2 will be disappointments. § 6 will follow expected course. 13 http://www.ICLUB.com 13
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service Invest in a business, not a stock: 14 http://www.ICLUB.com 14
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service 15 http://www.ICLUB.com 15
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service CTSH Revs PTP High/ Low Price ACE EPS 16 http://www.ICLUB.com 16
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ In short-term, price of stock affected by: § Investor market sentiment. § Analyst upgrades/downgrades. § Industry factors. § Politics. § Weather. § Rumor mill. § EPS estimate “hits” & “misses.” § Economic reports. ¡ None are predictable. 17 http://www.ICLUB.com 17
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service 18 http://www.ICLUB.com 18
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service 1. Growth § Of revenues and earnings. 2. Quality § Of management, primarily profit margins. 3. Value § Of stock at current price. 19 http://www.ICLUB.com 19
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Company must be profitable. ¡ Earnings & revenues must have history of acceptable growth. § Annual growth. § Recent quarterly growth. § Growth is appropriate for size of company. 20 http://www.ICLUB.com 20
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service FDS 21 http://www.ICLUB.com 21
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Earnings & revenues must be expected to grow at acceptable rate in foreseeable future. ¡ Incorporate near-term & long-term analyst estimates with historical trend to determine reasonable 5-year EPS figure. 22 http://www.ICLUB.com 22
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Lots of ways to measure “quality.” ¡ Our experience shows that, for consistent growing companies, pre- tax profit margin encapsulates depth & breadth of management skill. 23 http://www.ICLUB.com 23
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Company’s pre-tax profit margins must be stable (or growing!). ¡ Review 5-10 years (to see impact of economic cycle). ¡ Margins should compare well to competitors. 24 http://www.ICLUB.com 24
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service PCLN 25 http://www.ICLUB.com 25
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service SWKS 26 http://www.ICLUB.com 26
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service LKQ 27 http://www.ICLUB.com 27
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Current P/E Ratio below/near 5-year Average P/E. ¡ Current P/E Ratio appropriate for projected growth rate. ¡ PEG Ratio should be favorable. 28 http://www.ICLUB.com 28
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service SBNY Curr P/E ----------------------------------------------------------------- 18.8 5-Yr Avg P/E ----------------------------------------------------------------- 18.6 Projected EPS Growth 15.0% 29 http://www.ICLUB.com 29
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service FAST 5-Yr Avg P/E ----------------------------------------------------------------- 28.2 Curr P/E ----------------------------------------------------------------- 25.6 Projected EPS Growth 12.0% 30 http://www.ICLUB.com 30
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ What are likely high & low P/E Ratios of next five years? § Upside Price = High P/E x Projected High EPS § Downside Price = Low P/E x Potential Low EPS 31 http://www.ICLUB.com 31
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Current price should provide projected 15% annual total return in next 5 years. ¡ Downside no more than 1/3 of upside. 32 http://www.ICLUB.com 32
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Many customer evaluate fundamentals, then layer technicals on top to determine best entry price. § Moving averages, relative strength, point & figure. 33 http://www.ICLUB.com 33
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service 34 http://www.ICLUB.com 34
Profiting from Fundamental Stock Analysis by Doug Gerlach, Editor-in-Chief, Investor Advisory Service ¡ Never sell to “take a profit.” § Let winners ride to capture long-term profits. ¡ Occasionally sell on overvaluation. ¡ More often sell due to deteriorating fundamentals. 35 http://www.ICLUB.com 35
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