What is Fundamental Research?

1. What is Fundamental Research? Think About It: What factors make you want to purchase a stock?

2. Understanding Fundamental Analysis • Analyzes a company to determine if the market is undervaluing or overvaluing a company • Fundamental analysis studies financial figures and evaluates everything that can affect the security's value such as: • Macroeconomic Factors - Overall state of the economy and conditions in a companies industry • Microeconomic Factors - Company-specific factors like financials of the company, their management, and future outlook • http://www.investopedia.com/video/play/understanding-fundamental-analysis/#axzz2Lox3K7Ia

3. Fundamental Factors • P/E Ratio – Most used fundamental • Current stock price/ Earnings • Sales from the last year • Operating Income • New CEO and Senior Management Team • New product lines or improved production methods • A company who makes tablet computers in an increasingly wireless world • Global Economy

4. Investing Without Fundamentals • Sucker Rally • A temporary rise in a specific stock or the market as a whole. A sucker rally occurs with little fundamental information to back the movement in price. • This rally may continue just long enough for the "suckers" to get on board, after which the market or specific stock falls.Also known as a "dead cat bounce" or a "bull trap."

5. How Do you determine The Size of a Company? Think About It: What does the size of a company tell you?

6. Market Capitalization • Definition: The total market value of all of the company’s outstanding shares. • Investors use this to determine the size of a company instead of total assets or sales. • Why? • Investors buy stocks based on a companies future – accounting is done on past performance • Calculation • Share price X Total outstanding shares • Total shares outstanding found on “key statistics” page on Yahoo Finance.

7. Market Cap Classifications • Current Classification Levels • Large Cap: $10 billion plus • Companies with the largest market capitalization. • 532 companies at this level • Mid Cap: $2 billion to $10 billion • Over 4000 companies at this level • Small Cap: Less than $2 billion • http://ycharts.com/rankings/market_cap?p=1&s=calc&d=asc

8. Analyzing Market Capitalization • High Market Cap =Risk • Low Market Cap = Risk • Mid Cap companies need to be closely analyzed • May be those companies that are growing or previously high cap ones on the decline

9. Time to Research: http://ycharts.com/rankings/market_cap Go to the site above and choose a company with a market cap in the range provided. After reviewing the figures rank stocks in order of biggest riser to biggest faller .

10. How Do You Know If a Stock is Risky? Think About It: List all of the factors that make a stock risky?

11. How Does The Market Measure Risk • Risk is tough to assess • Most commonly used measure is Beta • Beta - is a measure of a stock's volatility in relation to the performance of the overall market • If a stock rises or falls equal to the overall stock market the beta is 1.0 • If a stock rises or falls more than the market the beta is over 1.0 • If a stock fluctuates less than the market the beta is less than 1.0

12. Advantages of Beta • It gives investors a universally used method to quantify the risk of a stock • Takes into account potential downside in relation to the overall market • Helps short term investors gauge potential risk/reward

13. Disadvantages of Beta • Only calculates past results and does not consider future indicators • Does not take into account many fundamentals such as the current price and future cash flows • Beta not used by value investors as it does not assess the pricing and earnings data • Less useful for long term investors

14. Companies & Beta • Average Beta • 3M – 1.1 • Microsoft – 1.1 • Hewlett Packard – 1.1 • Below Average Beta • Kraft - .05 • PG - .3 • VZ - .35 • What do these companies have in common? • Above Average Beta • Zagg – 2.4 • Zynga – 3.9 • What do these companies have in common?