Are you struggling to find reliable and well researched stock picks online?
Would you like to get some quick tips on the best way to develop a directional bias for any given stock?
If so, then the information contained in this article might save you a great deal of time and energy!
In the next few paragraphs, we’re going to give you a broad-brush overview of the research required to analyse a stock and provide you with an easy 3 step system for deciding whether to buy or sell that particular security.
A quick word of caution to the passing investor: it’s always best to seek advice on your investments from an experienced and regulated advisor that has access to strong, data-driven research. There is absolutely no substitute for expertise when it comes to market analysis!
That being said, let’s prime you with the tools required to make an initial assessment…
Example stock: BT Group (BT.A)
For the purposes of illustrating these concepts fully, we will take BT Group as a specific example of a company to work with. (please note that information presented on this company is accurate at the time of publication – 06/10/21)
This particular stock pick was generated by our analysts and has been taken from our recent report “5 Stocks to Buy this October”. (You can grab a free copy of that here)
In the below snapshot you will see that we break down our analysis into 3 distinct steps before arriving at a verdict, namely: ‘Company Overview’, ‘Fundamentals’ and ‘Technical Analysis’. (content taken from the report will appear in italics)
Fundamental and Technical Analysis are both vast enough subjects to fill an entire library, so we will extract some key areas of focus for each and then discuss how we can utilize them to arrive at a verdict.
- Company Overview
“BT Group plc is a communications services company. The Company is engaged in selling fixed-voice services, broadband, mobile and television products and services, as well as various communications services ranging from phone and broadband to managed networked information technology (IT) solutions and cyber security protection.”
Here we’re simply using a top-down approach to look at the company itself and consider its services and products, along with the sector which it operates within.
This helps to give us a good idea as to whether the security is worth further inspection.
If the company is not in the midst of any particular turmoil that might cause drastic near-term volatility, and the sector as a whole is buoyant, then we can usually move on to further analysis.
In stock analysis, fundamentals can refer to a variety of things including both inspection of company accounts, and interpretation of relevant newsflow. In our report we focus on two key pieces of newsflow that could have a positive impact on the stock in question.
“News recently broke that BT was in talks to with DAZN, referred to as the ‘Netflix of sport’ to sell its BT Sport division. Any deal is likely to be in the regions of hundreds of millions and could provide some upside relief for BT shareholders.”
Here we are looking at some news flow regarding potential talks between our target company and a business that may be looking to purchase one of their revenue streams.
Any rumour of acquisition potential will usually play out positively for the company as it gives the business a cash injection.
“Aside from these ongoing talks, Adam Crozier is set to join the board on November the 1st as the ‘unanimous choice’. He has an impressive track record at companies like Royal Mail, ITV, and Whitbread. Crozier is known from bold transformations and is likely to have the support of Chairman Philip Jansen. BT could be one to watch over the coming months.”
More news flow; this time in the form of the introduction of a new member to the board. Needless to say, the hiring of high level talent with a strong track record can have a huge impact on a share price and a companies future prospects.
We’ve also highlighted 3 important pieces of data to focus on when looking at any stock:
Market Capitalisation: £16.38Billion
Sector: Fixed Line Telecommunications
12 Month Price Range: 95.40 – 206.60p
The news flow based fundamentals are strong in this case, so lets take a deeper dive into technical analysis to see what we can find to either prop up or dissuade us from our growing positive bias.
- Technical Analysis
“BT’s share price came to life in November 2020 and rallied by an impressive 110% by June 2021. The momentum has slowed in recent months and a deep correction has occurred as the price has been trapped within a narrow bearish channel. “
Momentum based analysis can be a very important weapon in any investors arsenal. This style of trading seeks to take advantage of market volatility by taking positions in stocks that are in a strong uptrend.
We may then also be presented with an opportunity to sell when the same stock show signs of losing upward momentum.
To be successful in timing the waves of momentum it is especially important to have robust risk management controls on positions and use stop losses to manage downside risk and profit limits to upside profit targets.
“The price almost reached the 50% Fibonacci retracement level, but buyers appear to have stepped in ahead of that level to drive prices higher. The break from the corrective channel is an encouraging sign for the bulls and further upside is likely over the short term. Over the medium term, we believe a continuation higher is likely to at least retest those highs posted in June 2021 at 206.7p.”
And finally.. we take a look at Fibonacci retracement levels. a Fibonacci retracement is created by taking two extreme points (usually a peak and a trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.
For more information on how to introduce Fibonacci analysis into your investing, stay tuned for our complete technical analysis guide coming soon!
To get a better feel for the price action we can inspect the chart itself and set some key levels of support and resistance.
and the verdict is…
If you have done your analysis thoroughly then you can at the very least, usually ascertain a direction (BUY or SELL).
You can see here that our analysts have given a verdict of BUY on BT in our October Stock pick report.
Buy between 159 – 167p
In order to generate specific entry parameters, along with stops and targets, more in depth analysis would be required. This is where you would normally need to do significantly more work in order to invest safely.
First, before delving into any particular stock its always important to have a general feel for what the market is doing
We start every monthly stock pick report with a good overview covering such things as:
- Overall volatility
- Comments from the Bank of England
- Inflationary pressures
- Bullish / Bearish outlook
- FTSE Price action
Once we have a feel for what the market is doing, we can develop a firmer overall directional bias.
When it comes to isolating companies to analyse, if you’re not relying on an analyst with a good breadth of market knowledge, pick sectors and companies you know about or have an interest in. This way you will be willing to really drill down into the details.
If you would like the rest of our stock picks for October then you can grab our “5 Stocks to Buy this October” report by clicking here.
Risk Warning: Capital invested is at risk. The value of shares can fall as well as rise; you may not necessarily get back the amount you invested. Past performance is no guarantee of future performance. Clear Capital Markets Limited is authorised and regulated by the Financial Conduct Authority FRN 706689.
to see our full risk warning click here