Trading Tech Stocks
Tim says to always look at the profitability side of an earnings release. The average selling price, or ASP, shows what prices companies like Micron (MU) and Motorola (MOT) are selling their chips and phones for, respectively. The ASP moves with a company’s product line. When new products come out, the ASP drops dramatically a year later (cell phones exemplify this perfectly). If inventory is up and the price is down, tech companies have a huge problem on their hands, Tim says, which is why they are cyclical stocks to begin with. Market share is another valuable metric when it comes to tech, he says.
Trading Commodity Stocks
The usual fundamentals apply with energy, Eric says, but any time you’re dealing in commodities, you must be up to speed on geopolitics and weather. Sometimes one weather event is great for one commodity, but horrible for another. Dry weather can be bullish for corn prices, but bearish for heating stocks, for instance.
Trading Industrial Stocks
Here, it’s all about understanding the supply chain, Guy says. One day the airlines will be profitable and they will start buying new fleets. Obviously, that’s great for Boeing (BA). But look a little deeper, he says. Companies like Rockwell Collins (COL) that make in-flight electronics and aviation systems will get a pop too. Look at the trend, then go upstream with that trend to the associated name.
Trading Financial Stocks
The financials is a sector that has many sub-divisions that don’t always abide by the same rules. For instance, if you’re evaluating insurance companies you need to go against the grain and realize that hurricanes aren’t always bad for their bottom lines, Dylan says. Active storm seasons actually allow insurance companies to raise their rates. It’s also crucial to know an insurance company’s premium loss ratio. You only want to own insurance companies that are making more money than they are paying out, Dylan says. For banks, the important metric is the net interest margins. Is a bank paying more in interest than it’s collecting? You can gain insight into the brokers, which can be the hardest to evaluate, by looking at who doing the most underwriting, who is doing the most advising for M&A transactions, and who is brining the most debt to the market. Dylan says these indicators will shed some light on which broker is doing the best.
