Getting Company Information
There are two approaches investors use in evaluating stocks: fundamental analysis and technical analysis. Fundamental stock analysts focus on a company's ability to grow and make more money in the future. They do so by looking at: how much money the company has made in the past, how much money it has borrowed, how much dividend it has paid out to investors, how good its managers are, and other things that may affect the long-term profitability of the company.
In considering how good a company's managers are, a fundamental analyst might look at the qualifications of a new Chief Executive Officer (CEO). If the new CEO is coming from another company that he whipped into shape and made more profitable, this is great news for the fundamental analyst. The fundamental analyst would be optimistic that this CEO will do wonders for his new company.
Unlike fundamental analysts, technical analysts focus on how stock prices move up and down and how many shares of a company's stock are bought and sold on a day-to-day basis. Pure technical analysts don't usually concern themselves with the company's historical earnings or how wonderful the management may be. They are more likely to chart the up and down movements of a company's stock price for a period of time. By looking at the pattern of such movements, good technical analysts can sometimes predict which direction stock prices will move.
The truth of the matter is that there are probably no pure fundamental or technical analysts. Fundamental analysts often apply some technical analysis, and vice versa. In this section, we will teach you the first rule of basic fundamental analysis: understanding what a company does.
Knowledge of what a company does and the various kinds of businesses it is in is perhaps the most important item to understand when you first begin your evaluation of a company. In addition, you should identify other companies that may be in the same business as the company you are investigating; this way, you can make comparisons between this company and its competitors.
The Company's Stock Symbol
Each company has a stock symbol used for identification. This symbol makes it easier to list the stock on exchanges such as the New York Stock Exchange and the NASDAQ, where stocks are bought and sold. Before you can find the proper stock symbol for a company, you need to know the company's proper name. Because some companies have their names boldly written on the items they sell, you can easily identify the products they make.
For example, you can guess that Nike shoes are made Nike. However, the names of some products are not necessarily the names of the companies that make them. For example, the snack food Doritos is made by Frito-Lay, which is owned by PepsiCo, Inc.-the same company that makes Pepsi-Cola, Mountain Dew, Slice, and Tropicana. If the product is easily available such as candy or potato chips, you can usually find the name of the company on the container or wrapper.
If you have no clue about who makes a particular product (or delivers a particular service), you can always do a search of the product on the Internet using one of the search engines like Google or Yahoo. The result of your search should produce the name of the companies that make the products in which you are interested in investing. If you use the search functions in the sites of financial publications, you may even find the stock symbols of these companies because they are often included in financial articles.
Once you have the proper name of the company that you are interested in investing in, you need to know the stock symbol in order to get more information about the company. These days, nearly all investment sites will give you stock symbols if you type in the name (or part of the name) of a company.
When you type in a stock symbol in the various financial websites, you will see the latest financial information about the company. The first group of information that you are likely to see after typing in a stock symbol in a financial website include the latest stock price, the change in price from the previous day, the number of shares outstanding, the market capitalization, and a host of other financial information.
The Annual Report
Once you know the company you want to invest in, you should write or call the company for an annual report . Annual reports are usually magazine-size booklets that public companies send out yearly to their stockholders, the media, and potential investors to tell the world how the companies are doing. They are produced a few months after the end of a company's fiscal year. Annual reports are usually written to make the companies look really good but the Security and Exchange Commission (SEC) requires that they provide some standard financial information.
Although you can get most of the information about any company through the Internet, we think you should have a real copy of the annual report of the company you are evaluating so you can have a handy reference for your research. In addition, the annual report is your best source for timely and accurate information because some financial websites don't update company information as regularly as they should. You can usually get a copy of the annual reports of publicly traded companies from their websites. You can also call the company up to get glossy versions of annual reports mailed to you.
Basic Description Of The Company's Operation
The annual report will take some time before it arrives in the mail, so in the meantime you have to continue your research about the stock of the company in which you want to invest.
Big companies like Ford, Coca-Cola, and Chase Manhattan Bank have traditionally provided investors with lots of information about their operations. But as for the smaller and less widely known businesses, it used to be much harder to get an idea of the products or services they provide without spending lots of time in the library. Fortunately, the Internet has made gathering information about companies a lot easier.
You would think that what a company does is pretty obvious. But in some cases, it is hard to know exactly what a company does until you do more research. Take a company like the General Electric Company (GE), for example. Most people will tell you that GE makes appliances such as refrigerators, microwave ovens, and so on. Some may even be able to tell you that GE also operates television stations and that it owns the NBC television network. But did you know that the company also makes aircraft engines? Don't assume you know what a company does until you do your research.
Sometimes a company can be in so many different businesses that it is hard to pinpoint what it does. We tell Teenvestors to watch out for companies that go into various businesses that are not related in one way or another. For example, if Coca-Cola decided to go into the furniture business, this would be a sure sign that the company has lost its focus.
Websites where you can do your company research have write-ups called snapshots, or capsules (or other names that give you the idea that the descriptions are summaries about the activities of public companies). You can find snapshots in most good financial sites such as Yahoo Finance or CNBC.
Keep in mind that a snapshot is just the starting point for finding out what a company does. There are lots of articles in the business publications and the newspapers that can provide you with the information you need to make intelligent decisions about investing. Many of these publications are online and you can access them through our website.
(For The Advanced Teenvestor)
Advanced Teenvestors who really want to understand the operations of a specific company can try the U.S. Securities and Exchange Commission (SEC). The SEC requires all U.S. companies that are traded on stock exchanges to file yearly and quarterly reports (called 10-Ks and 10-Qs, respectively) about their operations. These reports have a Business Section that can give you some insight about the business, the competition, the company's future plans, and other interesting pieces of information that can help you determine what a company does. You can get these filings from the SEC's website (www.sec.gov).