Stock Research 1-2-3

There are three basic tools you can use to narrow your research on the companies in which you will ultimately invest:

Stock pages in the financial section of major newspapers. The Wall Street Journal is one of the best daily financial newspapers.
Quarterly reports and annual reports of public companies
The Value Line Investment Survey

The Stock Pages

To become a stock investor, you should start reading the business section of the daily newspaper. The financial section generally covers business news, featuring articles on industries, companies, and economic trends such as inflation, unemployment, and interest rates. In addition, the business section publishes stock tables summarizing the previous day’s trading activities. A typical stock table appears like this:

1		2	3	4	5	6	7	8			9
52Wk Hi	52Wk Lo	Stock	Sym	Div	Yld(%)	P/E	Vol/100s	Hi	Lo	Close	Net Chg
47.88	30.63	Coca-Cola	KO	0.5	1.1	37	22907	46.50	45.75	45.75	-0.63

Using Coke as an example, we can read the table as follows:

Hi Lo shows the highest and lowest price of the stock traded in the last 52 weeks (or one year), 47.88 and 30.63.
Stock indicates the name of the stock, Coca-Cola.
Sym stands for the stock symbol, KO, which is the abbreviation for Coca-Cola in the stock exchanges.
Div represents the dividends per share for the current year. This example shows that Coca-Cola pays out $.5 or 50 cents annually per share.
Yld(%) represents the percent of yield, 1.1, which is the dividend divided by the closing price of the stock. A high yield means the company pays out a high dividend.
P/E stands for price/earnings ratio, or the ratio of the stock price and annual earnings per share. P/E ratios vary according to the industry.
Vol (100s) means volume, or the number of shares (in the 100's) traded in the previous day. In this case, 2,290,700 shares were traded yesterday.
Hi, Lo, Close are the high, low, and closing prices of the stock on the date the table is published.
Net Chg indicates how much the price changed from the previous day.

Annual Report

Although you don’t have to be an accounting major before you invest in stock, you should learn how to read a company annual report, a report written annually about the company's operations. Most companies put their best face on in their annual report, distributing the report to shareholders and the general public on request. You can call, write, or e-mail the company for a copy of the annual report, even though you are not a shareholder. A typical annual report starts with a letter to the shareholders from the chief executive officer (CEO) of the company. In this letter, the CEO highlights the accomplishments, explains difficulties, and lays out future plans for the business. The rest of the report, interspersed with color photos, gives a more detailed discussion of the company’s operations.

No matter what the CEO says, the numbers and the financial charts in the report tell a more realistic story. To help you understand the numbers, click here to see a financial statement of Lemo, the company that sells lemonade.

The Value Line Investment Survey

Value Line gives a one-page comprehensive analysis on each of its 1,700 companies. Along with statistics going back fifteen years and projections going forward two years, Value Line offers what it calls a "timeliness" rating, how well it thinks the stock will do in the next year, from one to five for each company. Only one hundred stocks receive a "1" rating at any time, the "1" stocks being those that have returned an average of 18.4% from 1980 to 1995. Value Line's "1" companies have outperformed the market represented by the S & P 500 Index (average return of 11%) by a wide margin.

You can find the Value Line Investment Survey in most local libraries. The write up of each of the 1,700 companies along with their industry group is updated every three months. To learn how to use Value Line as a tool in picking stocks, click here.