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| *Ostroff, Fair and Company>>>Investing |
What is the criteria for a fundamentally strong stock ? |
are index stocks apparently fundamentally strong ? An index fund is not a stock. The only fundamentals that matter for index funds are fees and expenses. For a stock, you need to start by look at company earnings and the balance sheet. Companies that have strong earnings growth over the last few years, very low or no debt and a reasonable P/E ratio can be thought of as fundamentally strong. The P/E factor can be somewhat relative. This is where estimations of future growth potential start to come in. Small, young companies with lots of future growth potential can sometimes justify a higher P/E ratio, but not too high. When you think about it, it's similar to personal finance. Someone with a good job, good promotion prospects and no debt is said to be financially secure. Strong cash flow. Little or no debt. High return on equity. Good competitive advantage. Fundamental analysis does not normally apply to indeces. It normally applies to stocks of individual companies. Technical analysis might apply to index funds. The index can be technically strong or perhaps technically weak. Currently many indeces are approching technical weakness if they keep dropping. One might analyze the underlying stocks of an index and make some overall evaluation based on the underlying stocks as to wether the index is fundamentally strong. I believe Cramer has done that with the Dow Industrial Index on occassion. |
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