Reasons for Selecting These Stocks Outperforming Sectors
The exchange sector has been on an upward move, and the
stocks in this sector had the highest P/E ratios of any industry
sector in November 2006. Consequently, on November 17, 2006,
when the New York Mercantile Exchange listed its shares on the
NYSE and on its first day of trading more than doubled from $59
to $150 per share, this was a good sign for a momentum investor.
Believing that the Nymex’s stock price will perform in the same
manner as the other exchange-listed stocks is a reason to jump onto
the bandwagon. The Chicago Mercantile Exchange came public
at $35 per share in 2002 and was trading at $535 per share on
November 17, 2006.
The second stock, Google, Inc., was chosen based on analysts
upgrading their price targets to $600 per share. Google, Inc., passed
$500 per share on November 21, 2006, and closed for the day at $509
per share. Google’s stock hit a low of $331.55 on March 10, 2006, and
has been on an upward tear. Such price strength appeals to the
momentum-driven investor. However, momentum investors need to
be mindful of how long this stock can continue to appreciate, particularly
with increasing competition in the online advertising space.
The key to successful investing is to identify companies with accelerating
growth in sales and earnings that then translate into appreciating
stock prices. This is easier said than done because by the
time such a stock is identified, the stock price probably has appreciated
significantly. Corning officials had positive announcements
on its future quarter’s sales, which is a reason for this pick. Corning
indicated that for the first quarter of 2007, the company could benefit
from increased demand for liquid-crystal display (LCD) glass
for TV sets from China and from households in the United States.
The company also said that it would protect prices by walking
away from lower-priced business.
Cisco Systems was another choice based on fundamental factors.
Cisco purchased many businesses within the communications
sector, allowing the company to broaden its sales and consolidate
its leadership position. The stock price reacted to these fundamental
factors but has not risen quite as much as some of the other
momentum-driven stocks listed in Table 13–6.
Categories in Trading Mistakes
Lack of Trading Plan
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Using too much Leverage
Determining the proper capital requirements for trading is a difficult task
Failure to control Risk
Refusing to employ effective risk control measures can ensure your long-term failure
Lack of Discipline
A lack of discipline can destroy even the most talented and best prepared trader
Useful Advices to Beginning Trader
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