A fundamentally-sound company may not move its stock price. I give a score for each stock I evaluate. Some with worst scores have great return while some with excellent scores have worse returns.
However, I still stick with stocks I score high and once a while change my scoring system to reflect the metrics that work in current market conditions. To illustrate, the bottom and early recovery phases of the market cycle favor value rather than momentum.
* I double or triple my stack on stocks with high scores. In longer term, they are consistently better winners from my data.
* Watch out stocks with outrageous metrics like P/E of 5 or less. It could be a big lawsuit pending, expiration of some drugs...
* The technology patent of a tech company cannot be ignored even the company's P/E is high. The recent case is IDCC rising about 40% in 2 days. There is a rumor that Google is buying the company and/or Apple is bidding on it too for their mobile technology.
* The opposite is Netflix and Chipotle. They are over-priced by any measure. However, the shorters are having a tough time.
* It was quite easy to select CISCO over Apple by fundamental data (or Microsoft over Google) in 2007 but now by 2011 it was the reverse. However, the market is acting just the opposite.
* Some events the retail investor just does not know until it happens like ATSC dropped 15 or so % due to losing its second primary customer.
* After a quick run up, TZOO plunged due to missing some negligible earning expectation. It seems to be the original climbing prices had the perfect earning built-in.
* The financial data could be fraudulent or manipulated. Cash flow cannot be easily manipulated. It is a good info whether the company survives but it does not prove to be a good indicator for the performance of the stock price.
* The following are not found or are easily found in financial statements: patents, good wills, market shares, competitions, product margins, management quality, pension obligations, advertising icons...
The conclusion is the fundamentals do not always work: 1. especially in the short term. 2. many metrics are intangible. 3. Market is not rational at least not all the time.
(c) TonyP4 2011. Written in 7/20/11. Updated 7/20/11.
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Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
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