Overvalued Stocks
Using MarketXLS, Valuation Models

Identifying Overvalued Stocks Using MarketXLS

According to Warren Buffet, “Price is what you pay, value is what you get.” A stock is said to be overvalued when the price of the stock is indeed more than its actual value. Investors would avoid buying these stocks as they might fear a correction in its price. Day traders and swing traders can earn profits by finding such overvalued stocks and going short on them, expecting some correction in their prices shortly. Thus, identifying overvalued stocks is equally important as finding undervalued stocks.
Value Investing refers to investing in undervalued stocks and going long on them and sell them off when the stock price touches its exact value. Many investors of The Wall Street believe that identifying overvalued stocks is a part of Value Investing. For value investors, finding overvalued stocks helps in 2 different ways: 1) Avoid buying them and 2) If you own stocks that become seriously overvalued, it may be a good idea to sell and put the proceeds back into a different, undervalued stock.

Valuation Metrics

There are hundreds of ratios and metrics, which can be taken into consideration while analyzing a stock. However, overvalued stocks have specific characteristics and features, which aid us in identifying them. Therefore, I have listed down a few metrics/ ratios, which might help investors identify the actual value of a stock.

Price-to-Earnings Ratio (P/E Ratio)

It is the ratio of a company’s current market price to the earnings of the company in the past twelve months. It depicts the number of dollars you pay per $1 earnings of the company.

P/E Ratio

The easiest way of identifying overvalued stocks is by using this metric. Stocks having a higher P/E than its peers are considered to be overvalued in nature. Higher the P/E, higher are the chances of it being overvalued. However, one thing to be noted here is that this concept is not applicable to all the stocks of the stock market. It might be applicable to some of the stocks. This ratio is useful only while comparing companies in the same industry, not companies in various industries.

Price-to-Book Ratio (P/B Ratio)

It is the ratio of a stock’s current market price to its book value. Book value is the difference between the assets and liabilities of a company. It shows the difference between the market value of a stock and the book value of a stock. P/B ratio is an indicator of what the investors and traders are ready to pay for $1 of a company’s book value.

P/B Ratio

In this case as well, higher the P/B ratio, the more overvalued the stock is. The reason behind this is that a higher P/B ratio indicates that the market price of a stock is higher than the book value. This ratio might not turn out to be useful in pinpointing all overvalued companies.

Price-to-Sales Ratio (P/S Ratio)

The price to sales ratio of a company is the ratio of the current market price of a company to its sales. A high P/S ratio represents overvaluation and it might act as an alarm bell to the existing investors.

P/S Ratio

This ratio might not represent the true value of a company because sales do not represent profits. A company might have huge amount of sales but it might be running into losses due to huge capital and revenue expenditure. Hence, this ratio is applicable to companies in a few industries only.

Free Cash Flow

Free Cash Flow is the cash left over after deducting the company’s operational expenses and capital expenditure. It is one of the best indicators of the dividend paying capacity of a company. It has also proved to be an effective indicator of rise and fall of earnings of a company in the future. The higher the value of free cash flows of a company, the better it is for an investor to invest. Low value of free cash flows is an alarm bell for the investors of a company.

Identifying Overvalued Stocks Using MarketXLS

MarketXLS provides certain ready-to-use functions and features using which you can find out and perform analysis on overvalued stocks. Here is a step-by-step procedure using which you can identify overvalued stocks using MarketXLS.

  1. Open an excel workbook and go in the utilities section and extract the list of all the US stocks which are currently trading in the market.
Identifying Overvalued Stocks

2. The software will pull the data of all the stocks which are currently trading in the market. The table of stocks, which has been extracted also contains some other useful information like Open, High, Low and Closing prices, volume traded, market capitalization etc. Add a sort and filter option in all the column headings using the data tab. Now, in the filter option beside the ‘Symbol’ heading, search for the stock which you are looking for. In this example, we will be searching for the MSFT stock.

Identifying Overvalued Stocks Step 2

3. Now, only the data of that particular stock, which you have searched for, will be visible. Select the cell which contains the stock ticker and head your cursor to the ‘Key Ratios’ option in the Fundamental Analysis section.

identifying overvalued stocks step 3

4. The software will pull all the key ratios of the company’s previous quarters. You can add a filter option in the column headings here as well. By doing this, you will be able to search for the valuation metrics more easily. Uncheck the select all option and tick all the boxes of the valuation metrics, which you are looking for. There are 88 ratios from which you can select. Here, I have only searched for the price to book ratio. In this case, the P/B Ratio is high. You can arrive at a conclusion only after analyzing various other metrics and comparing the metrics of this stock with its peers. These ratios are just a part of the valuation analysis using the software.

Identifying Overvalued Stocks Step 4

Valuation Template

MarketXLS provides various ready-to-use templates for its users to make the work of analysis and interpretation easy.
This template contains much more advanced functions and metrics, which will give you a deeper insight into the valuation analysis subject.
You can find the detailed procedure of how to use this template and what are the characteristics of this template in this link – https://www.marketxlswp.com/comparable-analysis-equity-valuation/

The Bottom Line

The current market price of an overvalued stock is not vindicated by its earnings and overall growth. For a layman, consideration of overvalued stocks isn’t useful because they do not provide profits. But for traders, identifying overvalued stocks is important as they can earn profits by entering into short positions of the stock. In the case of an investor, identification of overvalued stocks is useful so that he doesn’t put his money in those stocks.
Overvaluation is a result of some psychological bias, a scam or a recent deterioration in the company’s fundamentals which has not been noticed by the lazy/ part time investors who hold a stock for a long time without keeping a regular check on it.
For more such exciting and useful content on various different financial topics, please visit https://www.marketxlswp.com/blog/

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.investopedia.com/articles/fundamental-analysis/09/five-must-have-metrics-value-investors.asp

Image Source

https://alphacapital.in/blog/indian-equity-market-is-overvalued-or-undervalued-analysis/

 

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Guru functions, How to use MarketXLS

Guru Screen Functions in MarketXLS – New Feature In Our Latest Update!

Guru Screen Functions are used to filter out stocks based on the winning investment strategies of stock market legends such as Warren Buffet, Benjamin Graham, Robert Piotroski etc. They are a part of MarketXLS since its foundation has been laid down. These screens are of immense value to the customers and users of MarketXLS. These screens are naturally embedded with hundreds of years of acumen and experience in stock market. A company needs to meet specific predetermined criteria and certain parameters to be accepted on these screens. They aid in quick decision-making.
The software previously had separate templates for each guru screen. The users had to enter their various requirements. The analysis of stocks using these guru screens used to be a slightly lengthy procedure. However, in our latest update, we have mutated and simplified these screens. Each template has been converted into single ready-to-use function. This article will provide a brief description on these guru screen functions.

What’s New?

In this release, we have added many advanced Guru Screen functions. There are 17 new guru screen functions in this update.
Here is a list of Guru Screen functions MarketXLS is offering in this new release:
=gs_Buffettology_EPS_Growth()
=gs_Foolish_Small_Cap_8_Screen()
=gs_Graham_Defensive_Investor_Non_Utility_Screen()
=gs_Graham_Defensive_Investor_Utility_Screen()
=gs_Graham_Enterprising_Investor_Revised()
=gs_Kirkpatrick_Value_Screen()
=gs_Lynch_Screen()
=gs_Murphy_Technology_Screen()
=gs_O_Shaughnessy_Small_Cap_Growth_And_Value_Screen()
=gs_O_Shaughnessy_Tiny_Titans_Screen()
=gs_Oberweis_Octagon_Screen()
=gs_Walter_Schloss_New_Lows_Screen()
=gs_Wanger_Revised_Screen()
=gs_Weiss_Blue_Chip_Div_Yield_Screen()
=gs_Templeton_Screen()
=gs_T_Rowe_Price_Screen()
=gs_Zweig_Screen()

You might have noticed that all the functions start with the letter “gs”. The letters “gs” are the abbreviation of the words guru screen. The significance behind using these two words is that it helps the user in easy identification of functions. All the functions starting with “gs” fall under the category of guru screen functions.
These ready-to-use functions pull the data of all those stocks which match with the criteria of the respective screens. This facilitates in easy comparison of stocks. It also helps in easier identification of new good stocks. We will learn about this feature in the step-by-step procedure given in the following section of this blog.
In this article, we will be looking at one of the guru screen functions and how to use it in MarketXLS.
We will be taking the example of Zweig Screen to explain the steps of using these guru screen functions.
The strategy for Zweig Screen given by the investment advisor Martin Zweig is based on identifying companies with strong growth in earnings and sales. For a stock to meet the Zweig Screen check, it must meet many earnings-related criteria, which indicate potential earnings growth at a high rate in the long term. This means it should be consistent over several consecutive years, has accelerated in recent quarters, and is sustainable.
For more details visit: https://www.marketxlswp.com/zweig-screen-parameters-analysis/

Step-by-step procedure of using MarketXLS to perform analysis on stocks using guru screens

Step 1: Open a new excel workbook and enter the formula of the Zweig Screen function as shown in the image below. You can see, as you type “=gs”, a list of guru screen functions automatically appear in the built-in drop-down suggestion list of functions of excel. Thus, MarketXLS provides you with a wide range of options to select from to perform analysis on stocks.

List of Guru Functions

Step 2: Enter the formula of Zweig Screen – “=gs_Zweig_Screen” or select the function of Zweig Screen from the drop-down list. Open and close the parenthesis without entering any values in between them. The software will automatically pull the values, criteria and parameters of the screen.

Zweig Screen

Step 3: The software pulls the data of all the stocks whose parameters match with the criteria of the screen. In this case, the software has pulled 18 stocks out of 15072 stocks. These 18 stocks match with the criteria set by the Zweig Screen.

Zweig Screen Function

How to find whether a particular stock falls under the criteria of the Guru Screen or not?

Step 4: This will help you to ascertain whether the stocks, which you are looking for, are accepted by the Zweig Screen or not. You can search for the stock ticker, which you are looking for, in the filter dropdown provided. If you find the ticker available in the dropdown, that particular stock is accepted by the screen. For example, in this case, we searched the ‘MSFT’ stock in the filter dropdown, and we found it. This means that the Zweig Screen accepts the Microsoft stock. You can apply the same procedure for other stocks and other screens.
(These functions should not be considered as an advertisement or advice, professional or otherwise. You are requested to consider all the risk factors, including your financial condition, suitability to risk-return profile, and other similar conditions. These functions do not account for any professional advice but are merely some guidelines to explain the concept.)

Filtering stocks

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. These templates should not be considered as an advertisement or advice, professional or otherwise. You are requested to consider all the risk factors, including your financial condition, suitability to risk-return profile, and other similar conditions. These templates do not account for any professional advice but are merely some guidelines to explain the concept. The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Image Source

TCIiNgpDMlvECFQAAAAAdAAAAABAP”>https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.businessinsider.com%2Fstock-market-rally-jpmorgan-2-charts-that-are-signaling-big-rebound-2019-1&psig=AOvVaw3vIYhnCNHgPuQBfJbmZhf2&ust=1623741891385000&source=images&cd=vfe&ved=0CA0QjhxqFwoTCIiNgpDMlvECFQAAAAAdAAAAABAP

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Option Strategies, Options, Templates

Synthetic Short Straddle With Puts Option Strategy

Introduction

Options are an important derivative class, which allow traders to take positions and generate profits with a limited amount of risk. Traders going long on options have to pay a premium whereas those going short / writing the option charge premium. Apart from this there are multiple option trading strategies, which enable traders to further reduce their downside risk and increase the chances of profit making based on different scenarios. These option-trading strategies can prove to be very useful for traders. One of these strategies is the ‘Synthetic Short Straddle With Puts Option Strategy’. We will learn in detail about what the strategy is, when it can be used, what the range of returns are, and how the strategy can be implemented using MarketXLS.

What is Synthetic Short Straddle?

Synthetic Short Straddle is an options trading strategy which is used when the trader expects the market to remain stagnant. Using this strategy, profits can be made even though the market doesn’t move much and remains stagnant. This is the sparkling point of this strategy, which makes it stand out from the other option trading strategies.

How to Execute this Strategy?

A synthetic short straddle with puts can be implemented by:

  • Being short on stock
  • Simultaneously selling twice as many lots of ATM put options.

Synthetic Short Straddle with Puts Option is used when the investor expects the price movement to be minimum. The aim is to see that the stock moves in a range. The profit here is limited and the maximum loss is unlimited.

Finite Profit Potential

Profit will only occur if the price of the stock stays in the expected range. The maximum profit is limited in this strategy. It can be achieved only when the stock price of the underlying asset is equal to the exercise / strike price of the options sold on the expiration date. The maximum profit would be equal to the net premium received while writing the put options. Both the written put option will expire without any gains/ losses and the net premium will be received by the trader for just writing the put options. The net premium would be the net cash inflow while writing the put options.
Net Premium Received=Premium ×No.of Lots ×Lot Size
Maximum Profit=Net Premium Received

Infinite Loss Potential

The trader executing this strategy would be at the risk of incurring an infinite loss if the market volatility increases. The trader would face losses if the markets move in either direction. The direction does not matter while estimating the losses. The reason behind this is that a huge descent in stock price will cause the uncovered put to expire deep in-the-money, requiring the trader to pay the difference between the price of the stock at expiry and the strike price. Conversely, an upward trajectory in stock price will create an acute loss on the short position, because the trader will need to cover the short.

Concept of Break-Even Points

There is a concept of break-even points in this strategy. There are two break-even points: Upper Break-even Point & Lower Break-even Point.
There will be maximum profit if the options expire at a price, which lies between the range of these breakeven points.
The lower break-even point = Strike Price – (Premium* No.of Lots)
The upper break-even point = Strike Price + (Premium* No.of Lots)

Executing the Strategy Using MarketXLS

MarketXLS is one of the top excel-based investment Research Solutions. It provides ready-to-use templates for facilitating data collection and presentation in an effortless manner. There is a template, which has been built specially for the execution of the Synthetic Short Straddle with Puts Option Strategy.

‘Index Sheet’

Introduction

This sheet gives a quick introduction to the template and explains how to use the template and mentions the inputs which are required to enter by the user in the template. Let us quickly move ahead to the active template sheet of the strategy which gives us a deeper insight into the strategy and how to implement this using MarketXLS.

‘Active Template Sheet’

This sheet is the actual sheet where the execution of the strategy takes place. It contains all the useful information and insights of the template.
The cells in which the user has to enter his inputs have been highlighted in yellow.
You have to enter the following information in the template:

  • Stock ticker
  • Expiry date of option
  • Price at which you sold one lot of stock
  • Number of shares shorted
  • ATM Strike price
  • Number of lots of ATM put option written
Synthetic Short Straddle With Puts Option Strategy Template

In this article, we will have used the example of ‘MSFT – Microsoft’ for better understanding of the strategy execution and implementation.
The expiry date of the options contract is 16 April 2021 and the ATM strike price at which the two lots of ATM put options are sold is $245. The number of shares shorted are entered as 100.
Upcoming expiry dates, current share price and lot size are available for investor’s reference on the right.
Now, in order to hedge our position, we will be short on stock and simultaneously sell 2 lots of ATM put options. The net cash flow of premium is always positive for this strategy because the investor is selling the ATM put options. The net cash flow will be an inflow in the form of premiums received.
You can see that the premium received is $0.06, which is equal to the bid price of the options contract. As a result, Net Cash Flow is computed as follows:
Net Cash Flow = Premium received * No.of Lots * Lot Size
= 0.06 * 2 * 100
= $12

Profit Loss Potential

This is the second part of the template. It demonstrates the payoff profile and the chart of the net payoff of the strategy. This is very essential for any trader as it displays the range of expiry prices and demonstrates the profit and loss potential at different expiry levels.
The user has to enter his inputs of minimum and maximum payoff profile. The Net Payoff table, which is on the right side, helps the user observe the potential profit/loss at different expiry levels. The Net Payoff chart is a visual demonstration of the information represented by the table. In the chart, the Y Axis is the Net Payoff of Strategy and the X Axis is the range of expiry prices. Maximum profit occurs at the strike price.
As the expiry prices of the option contract moves farther in either direction, the losses of the trader keeps piling up.
We can see that this strategy earns maximum profits at expiration if the underlying stock expires below the Upper Breakeven Point or above the Lower Breakeven Point.

Conclusion

Synthetic Short Straddle should only be used when the traders expect that the market/ stock will not move significantly over the life of the options contracts.
Many traders avoid using this strategy since there is no limit to the losses if the underlying asset moves significantly in any direction. It is a very risky strategy since there is limited profit potential and unlimited loss potential. Thus, one should use this strategy only if he is assured of a low volatility period of the underlying asset in the near future.
However, this strategy has proved out to be the most effective among its peers when the conditions are favourable for it to work. The profits, though limited, are definite and fixed if the option expires at the strike price itself.
For more such interesting articles on various topics and strategies of the stock market, please visit https://www.marketxlswp.com/blog/.

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.theoptionsguide.com/short-put-synthetic-straddle.aspx

Image Source

https://www.investopedia.com/options-basics-tutorial-4583012

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Investing in the Real Estate Sector
Informative

Investing In The Real Estate Sector (Sector Analysis Series)

Preface

When talking about real-estate, the first thing which comes to a layman’s mind is investing in property and houses. The orthodox investors still believe that investment in real-estate is only possible by acquiring big physical properties. According to them, profits can only be earned through renting the properties bought or selling them at a higher price after a specific period. But, in today’s world, there are a large variety of investment options for investing in the real estate sector other than investment in properties, houses and lands. However, the most popular way is by investing in the properties and renting it or earning capital gains by selling it at a higher price in the future. We will be discussing all the aspects related to investment in the real-estate sector. The topics of discussion would be:
• Why Invest in the Sector?
• Ways of Investing in the Sector
• Participants in the Real-Estate Sector
• What are REITs? Top 5 REITs
• Risks of Investing in the Real-Estate Sector

Why Invest in the Real-Estate Sector?

There are various advantages of investing in the real-estate sector. I have listed a few possible arguments for investing in the real-estate sector.
• Hedging
Hedging means reducing risks, offered by investments in asset classes, through strategies. An investor can hegde his risks by investing in the real-estate sector. This sector can act as a useful hedge against the risks provided by equity investments.

• Low Volatility of the Real-Estate Market
If an investor wants to “play safe” and not undertake much risk, he can invest in the real-estate market. This market is less volatile as compared to the equity and bonds market and hence it does not show abrupt and huge movements in the short term.

• Diversification
The profile of your portfolio should always be diversified. This is based on the famous saying that “One should not put all his eggs in one nest.” Real-Estate has a negative correlation with almost all the other asset classes. This would mean that if the equities/bonds in your portfolio are in red (down), your investment in the real-estate would be in green (up).

• Demand for Land
The demand for land and property is never going to reduce in the future. The main reason behind this is the world’s increasing population. As the population increases, more land will be required to accommodate people.

• A better yield than the discount rate of US Treasuries
Discount rate is the average rate of return provided by other assets in the market. The real-estate sector offers a better yield than the yield provided by the US Treasury market. This means that the Treasury Rate is usually low when compared to the yield provided by this sector.

• Various ways of Investment
Many investors do not prefer investing in properties. Besides owning the properties, there are various other ways of investment in the Real-Estate Sector. A few of them are:

  1. Real Estate Mutual Funds
    These mutual funds collectively invest the investors’ money in real estate stocks and manage them accordingly. This ensures diversification and reduction of risk.
    Eg.: Cohen & Steers Inc, Real Estate Select Sector Sector SPDR.
  2. Real Estate Investment Trusts (REITs)
    This is one of the best options of investing in the real estate sector. These companies own, guide and govern rented commercial property They provide greater diversification, maximize returns and minimize the risks. Some of the REITs provide regular dividends as well.
    Eg.: Federal Realty Investment Trust (Invest in properties of shopping centres), Corporate Office Properties Trust (Invests in Office Buildings)
  3. Equity Shares
    This involves investing in the shares of public and private companies having their business in the real estate sector. There are many real estate companies which are listed on the exchanges.
    Eg.: Brookfield Property Partners LP

• Dividends
There are 206 dividend-paying companies out of a total of 256 companies in the real estate sector. Investing in these stocks would assure you a fixed income in the form of dividends besides providing capital gains.

Participants in the Real-Estate Sector

Earlier, investment opportunities in the real estate sector were less and hence there weren’t many participants in this sector. However, things have changed now. The real estate sector also includes the REITs along with the publicly traded companies which are engaged in the real estate business. There are, in total, 256 stocks in this sector. The companies in this sector range from Equity REITs to Real Estate Operating Companies and those involved in the Real Estate Services.
Let us have a bird’s eye view of the participants in the sector.

Participants in the Real Estate Sector

What are REITs?

What are REITs?
Real Estate Investment Trusts (REITs) are companies which possess, control and manage income-generating real estate properties. Their business also extends to the dealings of mortgages and sub mortgages on the physical properties. An investor can invest in these REITs directly by purchasing shares of the company or through ETFs (Exchange Traded Funds) or MFs (Mutual Funds).
There are nearly 160 REITs which are listed on exchanges, out of which 95% stocks are dividend paying. This ensures a fixed income in the form of dividends, in addition to the capital gains, if any. Dividend payout is one the biggest benefits of investing in the REITs.
The REITs are classified on the basis of sectors. A specific sector REIT focuses on the potential income-generating properties in that sector. I have listed out 4 types of Sector REITs so that after going through them, you will have greater clarity while making your investment decisions.

• Retail REITs
These are companies which invest in properties in shopping malls and standing retail outlets. They earn the majority of their income through rents, which are fixed and pre-decided. Hence, such REITs receive their return irrespective of the profits/ losses made by the retail business owner. But, if the retailers become bankrupt due to lack of cash flow, they could default on those monthly payments. Hence, the returns are also accompanied by an equal amount of risk.

• Healthcare REITs
These REITs invest in the properties of hospitals and medical centres. The success of these REITs depends upon the healthcare system and structure of the country. It also depends upon the death rate,predominant age group of the population, diseases and various other demographic factors. If the majority of the population is aging, then the demand for healthcare and medical products would be high. As a result, investment in such properties would be lucrative.

• Office REITs
Office REITs invest in commercial and office buildings. Their primary targets are commercial areas. They receive income in the form of rents from the person who agrees to occupy the property by paying a fixed monthly rent.

• Hotel & Resort REITs
These REITs invest in properties of hotels, motels & resorts. These REITs earn a lot during vacations and normal conditions. But, incase of national emergencies, extraordinary circumstances, economic recessions and depressions, they suffer the most. In such situations, people do not prefer going out or spending money on such luxuries. Rather they prefer spending on the necessities.

Risks & Perils Associated

Though the Real-Estate Sector looks good and helps in the diversification of the portfolio, there are various risks associated with investing in this sector.

Risks of Investing in the Real Estate Sector

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.investopedia.com/mortgage/real-estate-investing-guide/
https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp

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Informative, Technical analysis

Technical Indicators – Meaning & Application

Technical Indicators’ analysis is the study of historical data to estimate futuristic trends and fluctuations in the prices of stocks. It is used to determine the entry and exit points in the market. There are various economic indicators for estimating economic growth in the future, like GDP & GNP. Similarly, in the stock market, we have technical indicators, which help forecast and estimate futuristic movements and fluctuations in the prices of stocks. Day traders and swing traders, who execute trades on an intraday basis, generally use these indicators. These indicators are constructed on the basis of historical prices and volumes. There are thousands of technical indicators out there in the market, but not all of them might be useful. In this article, we will look at some of the most important and valuable technical indicators. After going through this article, you will understand:

  • How to interpret various technical indicators
  • How MarketXLS helps you identify and interpret these indicators, and how it helps you make better investment and trading decisions.

We will be looking at the following indicators:

  • Bollinger Bands
  • Simple Moving Average
  • Exponential Moving Average
  • Golden Cross
  • Death Cross
  • Moving Average Convergence Divergence (MACD)
  • Relative Strength Index (RSI)

Bollinger Bands

Technical Indicators - Bollinger Bands

Bollinger band is a band drawn around the prices depicted on the chart. It tells you that the price should remain within those bands at a certain probability.
Ways of Interpretation:
If the stock price goes beyond the range of the band, there is a certain probability that it might come back and correct itself at a price that is within the range of the band.

Simple Moving Average (SMA)

Technical Indicators - Simple Moving Average

A Simple Moving Average is a technical indicator that flattens and smoothes the fluctuations in prices. It is a metric, which first calculates the arithmetic mean of the closing prices of a particular period and then depicts the curve of this movement on the chart. The closing prices of each day are added and then divided by the number of days.

Technical Indicators - Simple Moving Average Formula

Where,
C = Closing price
n = Number of periods
The yellow curve in the chart above represents the 20-day moving average curve. There are several periods in which SMA can be taken into consideration. The most prominent ones are:
10-days SMA
20-days SMA
50-days SMA
200-days SMA
Ways of Interpretation:
Simple Moving Average can help in ascertaining if a stock price will continue moving in that direction or if it will reverse the trend. A trend change can be identified by sudden rise or fall in SMA line.

Exponential Moving Average (EMA)

Technical Indicators - EMA

The Exponential Moving Average is a technical indicator, which is similar to simple moving average. It is a type of moving average, which says that the stock price would revolve around the line formed by plotting the trend of EMA prices. The only difference is that it gives more weight to recent prices. This is due to the concept that price discounts everything in the market. Giving more weight to recent prices implies that this indicator would be relatively more receptive to new information/news. The blue curve in the above chart represents the EMA.
For calculating EMA, you need to first calculate SMA. The next step would be the calculation of the multiplier, which would help in assigning more weight to recent prices. The formula for computing the multiplier is as follows:-

Technical Indicators - Smoothing Factor Formula

Where,
S = Smoothing Factor
Now, the EMA is calculated with the help of this smoothing factor. The formula for calculating the EMA is:

Technical Indicators - Exponential Moving Average Formula

Golden Cross

Technical Indicators - Golden Cross

A Golden Cross is an indicator, which is interpreted using two types of moving averages. It signals a strong long-term bull market in the near future. It has more strength when high volumes accompany it.
It occurs when a short period moving average surpasses a long period moving average level and the stock price continues to rise. After the crossover, the long term moving average is believed to be a strong support level by many investors.

Death Cross

Technical Indicators - Death Cross

A Death Cross is an indicator which is interpreted with the help of two types of moving averages. It signals a strong long-term bear market in the near future. It has more strength when high volumes accompany it.
It occurs when a short period moving average descends below a long period moving average and the stock price continues to fall. After the crossover, the long-term moving average is believed to be a strong resistance level by many investors.

Moving Average Convergence Divergence (MACD)

Technical Indicators - MACD

The MACD is a momentum indicator which helps in forecasting the volatility and the trends of the stocks in the market. It is one of the most important and effective indicators. It is computed by subtracting 26-period EMA from the 12-period EMA.

Ways of Interpretation:
When the MACD crosses above zero, it is considered a bullish sign and when MACD crosses below zero, it is considered a bearish sign. Higher/ lower the MACD above/below the line, stronger is the market sentiment.
The histogram represents the distance between the MACD & it’s signal line. The red line is the signal line and the blue line is the actual MACD. If the MACD is above the signal, the histogram will be above the MACD’s baseline, i.e. above 0. The histogram will be shown in green as it indicates a bullish sentiment. And if the MACD is below the signal, the histogram will be below the MACD’s baseline, i.e. below 0. The histogram will be shown in red as it indicates a bearish sentiment.
In the chart above, you can see that as soon as the MACD curve descends below the ‘zero’ level, a bearish trend starts and as soon as the MACD curve surpasses the ‘zero’ level, a bullish trend starts. These incidents have been encircled in black in the chart.

Relative Strength Index (RSI)

RSI.png”>RSI.png” alt=”” class=”wp-image-16905″ width=”696″ height=”443″/>

The RSI is a momentum indicator used to find the magnitude of price change to ascertain the market’s volatility. It indicates whether a stock is overbought or oversold. If the stock is overbought, then the traders sell the stock, and its price falls, and if the stock is oversold, then the traders buy the stock, and its price rises.
Ways of Interpretation:
There are two RSI reference levels: 30 & 70. If the RSI surpasses the 30 reference level, it is a bullish trend. If the RSI crosses the 70 reference level, it is a bearish trend.
(The perspective of many investors, related to RSI, may be different.)
Usually, 14 days of data points are considered to calculate the initial RSI value.
Formula:

RSI-Formula.png”>RSI-Formula.png” alt=”” class=”wp-image-16906″ width=”318″ height=”97″/>

Technical Indicators in MarketXLS

By looking at the formulas and the calculation steps of various indicators, you might have understood that calculating them and its trend line is very tedious and time consuming. It is not the investor’s work to calculate them. The investors just have to interpret them to make quick and effective trading and investment decisions. The software does the back-end job for you. MarketXLS provides ready to use functions and formulas using which you can easily interpret any technical indicator and make your investment decisions easier and faster.

Step-by-Step Procedure To Interpret Technical Indicators Using MarketXLS

  1. To identify and interpret technical indicators, firstly we need to get the data of the stock. Here we just need to add the ticker in any cell and select custom dates and get the historical data.
Technical Analysis Using MarketXLS

2. A dialog box will appear and you will be prompted to select the dates for the period you wish to analyze. You can also select the time frame or the periodicity for which you wish to pull the data. The options available are minutely, daily, weekly, monthly and quarterly. In this case, we will select the dates as 10th June 2020 – 10th June 2021 and the periodicity as daily. In order to analyze technical indicators, you will need the open, high, low and close (OHLC) prices of the whole period. Hence make sure that you have at least ticked the OHLC check boxes which are given in the bottom right of the dialog box.

3. Once you have the data generated, you can generate your technical indicators by clicking on any of the dropdown menus given beside the different categories of technical indicators. A downward arrow indicates dropdowns.

For example, in the snapshot below, we have decided to use Relative Strength Index, which is a part of the dropdown option of Momentum Indicators.

4. A pop-up box will appear where you will be asked to select the series of cells where the data of OHLC prices lie. You can select the whole series of Open, High, Low and Closing prices of each day between 10 June 2020 and 10 June 2021.

5. Next, you will be asked the time period on the basis of which the software will pull the RSI values. As mentioned earlier, the default time period for calculating RSI is 14 days.

6. After clicking ‘Ok’, you will be prompted to select only one cell where you want the software to display the results of the values of RSI. It would be advised that you skip the first row for the header of the column of values and select a cell in the 2nd row. For example, here, I have left the first row for the header and selected the cell named ‘H2’ for displaying the results.

7. After clicking ‘Ok’, you will see that a whole new column, named ‘Relative Strength Index’ has been added. This column displays daily values of RSI.

Interpretation: There are two RSI reference levels: 30 & 70. If the RSI surpasses the 30 reference level, it is a bullish trend. If the RSI crosses the 70 reference level, it is a bearish trend.
(The perspective of many investors, related to RSI, may be different.)

The Bottom Line

I have explained the meanings and interpretations but you have to understand that different indicators have to be used under different circumstances and for different types of strategies.
You cannot take the same indicator and use it across the board for all stocks, strategies & events. You have to have a specific environment that is suitable for that indicator.

The software makes your work easier, by providing a ready-to-use list of indicators. By the use of this list, you can extract values of any indicator. You can use them for all the stocks and for any time period in the past.

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.investopedia.com/terms/m/movingaverage.asp

Image Source

https://www.tradingview.com
https://www.investopedia.com/terms/r/rsi.asp

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Informative, Technical analysis

Stock Market Technical Analysis For Beginners

Introduction

You might have come across the term technical analysis countless number of times. This word fascinates most of us but very few of us actually know what technical analysis is. The term Technical Analysis means the anticipation of the general direction of Current Market Prices (CMP) of various stocks using past market data. It is the source of identification of trading techniques and opportunities based on the movement and reaction of other market participants. In this article, we will be covering all the basics of technical analysis, the knowledge of which you would require as a professional trader or a student.

When Should You Use It?

Those who are short-term traders and trade stocks on an intra-day basis use technical analysis more frequently. Day traders and swing traders make use of technical analysis of a stock the most often! Technical Analysis helps in identifying short-term trading opportunities for making profits while investing or trading.
Investors only use Technical Analysis to calculate the entry point of the stock and to determine the exit price. The entry point refers to the price at which the investor/ trader should buy a stock, which would help him to make more profits. The exit price refers to the price at which the investor/ trader should sell a stock and book profits without taking further risk of holding it for a longer period. Both entry and exit points need to be determined by any investor/ trader before taking any kind of position in the stock market.
However, I would like to say that both technical and fundamental analysis are equally important if you want to gain success in the stock market.

Basis of Technical Analysis

When we are talking about Technical Analysis, we are talking about the study of two things, Price & Volume. Let us understand both of them in detail.
Price: The price of the stock is the Current Market Price at which the stock is trading. The historical price of a stock helps in determining the current trend of the stock. Trends tell you the most about a stock. We will be discussing trends in the latter half of the article. Make sure that you stick with me until the end so that you do not miss out on such an important aspect.
Volume: The volume is basically the quantity of shares that have been traded at a particular point of time. It represents the number of times a stock changed hands during a particular period. When you open a chart of any stock, you will be able to see the volume at the bottom of the chart. Quantity or volume actually confirms if there was a meaningful price movement to a stock. If the price is backed by volume, then it assures us that the change in price might be meaningful.

What is a Chart?

Technical Analysis is all about price and volume. We can come to know about trends using historical prices of a stock. All this information about prices, volumes, trends and indicators is represented through a chart. A chart is a graphical representation of historical prices of a stock. A chart represents the flow of prices during a particular period of time. The upper half of the chart shows the movement in prices and the bottom of the chart shows the volumes at which the stock was traded at a particular point of time. Charts are the base of technical analysis. Many traders execute trades and book profits just by looking at charts.
Different types of charts:

Line Chart
A line chart is a chart which represents the connection of various historical prices of a stock using a continuous line. It doesn’t show much information to the trader. It helps in easy identification of trends.
Bar Chart
Bar chart connects historical prices using several bars of different lengths. The lengths of these bars depend upon the price movement in a particular period.
Candlestick Chart
These are the primary charts used by all the traders. These charts represent historical prices through candlesticks. This is the most useful chart type and helps traders in identifying lots of useful information.

What is a Candlestick?

A candlestick is a very useful means to display the open, high, low, and closing (OHLC) prices of a stock. Because they contain so much information, candlestick charts are widely used by technical traders. The body of the candle is the hollow or filled portion. The long thin lines called the shadow depict the highs and lows.
A hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body, if the stock closes higher than its opening price, representing the closing price. If the stock closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.
Each candlestick represents a certain time period. We can classify candlesticks on the basis of time period. For example, there are 1-minute, 5-minutes, 1-hour, & 1-day candlesticks.

Market Sentiment

Market Sentiment is the comprehensive attitude of all the investors towards the securities market. It represents crowd psychology. It is determined using the price action and movement of a stock. It is a major part of technical analysis. Day traders and technical analysts rely on market sentiment, as it influences the technical indicators and chart patterns which they utilize to gain profit from short-term price fluctuations. There are two types of market sentiments:
Bearish Sentiment
The market sentiment is said to be bearish when the prices are falling and the bears are in the lead. Bears are all those traders who believe that the market is weak and the stock prices are going to fall. They earn profits by going short on a stock.
What do you mean by going short? Profits can be earned by borrowing a stock and selling it at a higher price and then buying it back at a lower price when the market has fallen. It is also known as short selling. It is a practice adopted by bears when they believe that a market fall is near.
Bullish Sentiment
The market sentiment is said to be bullish when the prices are rising and the bulls are in the lead. Bulls are all those traders who believe that the market is strong and the stock prices are going to rise in the future. They earn profits by going long on a stock.
What do you mean by going long? Profits can be earned by buying a stock at a lower price and then selling it at a higher price when the market is up. It is a practice adopted by bulls to earn profits when they believe that the market is going to rise in the near future.

What is a Trend?

Trends are the core of Technical Analysis. They are structured through the movement of prices in a particular direction. The principle of Technical Analysis is that prices move in trends and history tends to repeat itself. A trend is the direction in which the prices are moving.
Different types of trends:

Down Trend
When the stock prices move in a downward direction, it is said that the stock prices are showing a down trend. It means that the current high is lower than the previous high and the current low is lower than the previous low. It demonstrates lower highs and lower lows. It represents a bearish sentiment in the market.
Side Trend
A stock is said to be moving in the side trend if the stock prices move sideways. It means that the prices fluctuate in a particular range. It represents that neither the bears nor the bulls are in power.
Up Trend
When the stock prices move in an upward direction, it is said that the stock prices are showing an up trend. You can interpret that the current high is higher than the previous high and the current low is higher than the previous low. It demonstrates higher highs and higher lows. It represents a bullish sentiment in the market.

You can see an example of the three types of trends in the snapshot of the chart which I have attached. The first trend is a down trend since the prices are moving in the downward direction. The downtrend is followed by the side trend/ the range which is followed by a relatively bigger up trend.

Concept of Support & Resistance

When you have a glance at a chart of any stock, you will observe that the price of a stock doesn’t fall below a certain level and the price doesn’t rise above a certain level. This takes us to the concept of support and resistance.
Support means something that upholds and supports the price of a certain stock and doesn’t let the price fall below it. Every time the stock price goes down and hits the support price, the price bounces back off it. The support forms the base for the price of the stock.
Resistance is something that the price cannot go through. It combats the price when it hits a certain high price. Every time the stock price goes up and hits the resistance, the price doesn’t break through the resistance level.
The support and resistance helps in maintaining volatility and speculation and keeps the price of a stock within a certain range.
You will understand this concept better from the diagram below.

The green line represents the resistance price for the stock, i.e. 120 and the red line represents the support price for the stock, i.e. 115.

Technical Analysis using MarketXLS

Technical Analysis using MarketXLS

MarketXLS provides various useful tools and functions for execution of trades using technical analysis. There are hundreds of functions which you can use to find the daily prices, volumes and other technical aspects of the stock. Here, I have attached a snapshot of how the software helps in the execution of trades through technical analysis. You can avail the technical analysis functions through the ‘Technical Analysis’ section of the ‘MarketXLS’ tab.
You will come to know more about how to use MarketXLS for the execution of technical analysis in the next few blogs of the series. There are various technical indicators and chart pattern recognition functions and formulas using which you can take your trading decisions.\

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

 

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Investing In Telecom Sector
Informative, Others

Investing In The Telecommunications Sector

Preface

The technology that enables you to read this blog online is provided by the telecommunications sector. Since the pandemic began, the world has started realizing the value of the internet. Everything is available online now and many companies prefer operation online only as it helps in cutting costs and expenses. This online medium is only available due to the internet services provided by the companies operating in the telecommunications sector. Hence, you can estimate the jump which such companies have taken in the past couple of years. Leaving the pandemic aside, the telecom industry has been one of the fastest growing industries of the world in the past decade. The evolution of wireless communication and data has been one of the significant developments of the modern world. There are various aspects of this industry which we will be covering in detail here.

Why Invest in the Telecom Sector?

  • DEREGULATION OF THE SECTOR

Early on, the telecom industry was controlled by most of the governments in most developing nations. But, this sector has been deregulated and liberalized in the past few decades. This has given a significant boost to the sector. The opportunities for this sector are rising day-by-day.

  • INNOVATION

There has been a great amount of innovation in the telecom sector in the past decade. This is the result of the capital invested by the companies in the R&D department. The biggest example of innovation is the evolution of wireless technology, which has resulted in the development of wireless communication software and devices. The second big thing is the evolution of internet services and provision of data services. 5G and 6G are the new things, which have to be looked into by companies in this sector.

  • DIVIDEND-PAYING STOCKS

Fifty percent of the total stocks are dividend-paying stocks in the telecommunications sector. Investing in these stocks might help you earn a fixed income in the form of dividends besides providing capital gains.

  • OPPORTUNITIES FOR ALL TYPES OF INVESTORS

The sector has equity stocks which provides investment opportunities for growth, income and value investors. There are stocks that provide regular dividends and there are stocks which also provide capital appreciation. There are many underrated stocks as well which have great future prospects. All these stocks need to be identified carefully.

  • DEPENDENCY ON INTERNET

The internet has been the medium of virtual settings taking place in any sector. The Internet is the foundation of everything which takes place in the online medium. Everything in the modern world is dependent on the internet and its dependency is increasing day-by-day. The provision of internet services is in the hands of the blue-chip companies of the telecom sector.

  • VARIOUS CHOICES FOR INVESTMENT

       i.          Equity stocks

This includes direct investment in the stocks of various companies.

Example: Verizon Communications (NYSE: VZ)

      ii.          Exchange-traded funds (ETFs)

These are a collection of stocks, which track a particular index.

For example, Fidelity MSCI Communication Services Index ETF (FCOM) – tracks the majority of the telecom companies across the sector

     iii.          Mutual Funds

These are funds, which track a particular set of stocks of the telecom sector. Investing in mutual funds diversifies the risks of the portfolio.

For example, Fidelity Select Wireless Portfolio

Participants in the Telecommunications Sector

There aren’t many participants in the telecom sector. This implies less competition and huge growth opportunities. Major blue-chip stocks dominate this sector but there are small-cap companies as well which are showing a good growth potential. These companies are classified into diversified and wireless communication services.

Let us have an overview of the participants in the sector.

Participants in the Telecom Sector

Telecom Stocks to Look Out For

The companies in the telecom sector are involved in these major segments.

  • Wireless communications
  • Communications equipment
  • Long-distance carriers
  • Domestic telecom services
  • Foreign telecom services
  • Diversified communication services

Here is a list of a few exciting stocks to look out for. These stocks are the stocks of blue-chip companies in their respective sub-sectors:

Verizon Communications is the largest wireless carrier in America. It is an American Multinational Corporation headquartered in Midtown Manhattan. Its market capitalization is $233.04 billion and it’s a dividend-paying stock. Its dividend yield is 4.46%.

It is the world’s largest telecom company and the second largest provider of mobile telephone services. Its headquarters are in Texas. Its services and products include satellite communication services, internet services, broadband, etc. Its market capitalization is $212.13 billion and its dividend yield is a whopping 7%.

T mobile is an American wireless network operator, with its headquarters in Washington, US. Its market capitalization is $176.2 billion. It does not pay out dividends. Its aim is to make the customer’s life easier with a curated collection of convenient apps and services.

Qualcomm is an MNC with its headquarters in California. It creates and ideates software related to wireless technology. Its market capitalization is $144.8 billion. It is a dividend-paying stock, and its dividend yield is 1.89%.

(NOTE: These stocks are not recommendations made by us. It is just a list of stocks of a few industry leaders that are diversified in different sub-sectors. The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.)

Risks Associated

Risks of Investing in Telecom Sector

Key Takeaways

One has to consider the various fundamental aspects of the company before investing in the telecom sector. I have listed down a few criterias on which an investor should focus before deciding whether to invest in a telecommunication company or not.

  • Huge Free Cash Flows
  • Investment by the company in R&D
  • Price to Sales ratio
  • Efficiency Ratio
  • Growth in the share price of the company in the past few years
  • Healthy Balance Sheet

The companies in this sector usually have very low or no retained earnings. There are various reasons behind this. All the companies have outperformed in the past few years because of the strong fundamentals and the growth potential, which they show. Hence, the fundamental aspect becomes very important which needs to be looked into before investing.

This sector has attracted investors for the past few decades, and now it has become a part of a majority of the investors’ portfolios.

MarketXLS has a blog on the topic 5G penny stocks. If this topic interests you, click here to directly go to the blog.

MarketXLS provides a ready-to-use template for facilitating comparison between various sectors. This analysis and comparison are made based on various parameters. They include Return on Equity, P/E Ratio, Dividend Yield, etc.

You can click here to go to the template.

For more such exciting content, please visit https://www.marketxlswp.com/blog/

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.

The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.

The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.investopedia.com/ask/answers/070815/what-telecommunications-sector.asp#investing-in-telecommunications

Image Source

https://www.dnaindia.com/business/report-telecom-companies-consumers-have-a-reason-to-worry-2723646

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Informative, Others

Investing In The Finance Sector

Introduction

The Finance sector is the backbone of the economy. Investing in the finance sector has become a necessity. Adequate finance is a pre-requisite for any company’s survival. A sound finance industry implies a fast flow of money in the economy. This sector mainly involve the companies providing financial services to all other industry participants. There are many blue-chip companies leading and dominating the industry but there are a few small and mid-cap companies as well. This sector provides a broad range of services, which cater to the needs of the whole economy. These services include banking, insurance, etc. The problem, which arises, is that when people think of financial services, they mainly recognize banking as an instrument. However, in modern world, except for banking there are hundreds of important services and products, which the industry participants of the finance sector provides.

Why Invest in the Finance Sector

There are various reasons due to which innumerable investors have been attracted towards this sector. We will now look at some vital reasons for investing in this sector:
EVER-BOOMING INDUSTRY
The finance sector has shown consistent growth and expansion over the past few decades. It is expected to perform in the same way in the future as well. The main reason behind this is that the demand for money, capital and finances is never going to reduce. The services provided by the industry participants of the finance sector fulfill human wants. Since, human wants are unlimited and never ending, we can expect this sector to give huge returns in the future.
INVESTOR’S CHOICE
The financial services sector attracts the maximum number of investments from the investors of Wall Street. It attracts 25% of all the impact investments, which is greater than the total impact investments in the energy, health care and agriculture combined.
BEDROCK OF ALL INDUSTRIES
The financial services form a bedrock for all types of companies and individuals in the economy. All units in the economy, starting from individuals to industries, need finance for subsistence, growth and prosperity.
ESSENTIAL FOR ECONOMIC GROWTH
A sound and adequate finance sector says a lot about the economy. The financial services sector is the road hog of a country’s economy. It provides capital and liquidity to all the industry participants whenever there is a need for it.
DIVIDEND INVESTING APPROACH
Many stocks of the financial services sector pay regular dividends to its investors. Investors looking out for investing opportunities, which are safe and provide good returns in the long term can consider these dividend-paying stocks as a good investment opportunity.
DIVERSITY OF THE SECTOR
There are a huge number of participants in the finance sector. The magnitude and size of the sector is vast and the companies involved in providing financial services are classified under various sub-sectors. The finance sector contain an investment opportunity in these sub-sectors:
I. Banks
II. Insurance
III. Financial Services
IV. FinTech & Cryptocurrencies
Thus, an investor can invest in any of the companies under these sub-sectors.

Participants in the Finance Sector

There are enormous number of participants in the finance sector. An investor has a huge range of opportunities and choices of stocks to select from. This makes the sector a diversified one. There are 1044 stocks and more than 2000 cryptocurrencies listed in the finance sector. These stocks range from companies engaged in providing banking services to companies engaged in dealing in crypto transactions and services.
Let us have a look at the participants in the sector.

Participants in the Finance Sector

Finance Stocks to Look Out For

Financial services is a broad range of more specific activities such as banking, investing, and insurance. Financial services are limited to the activity of financial services firms and their professionals while financial products are the actual goods, accounts, or investments they provide. Majority of the investors are confused between various stocks. Here, I have listed a few stocks in the finance sector that are conglomerates in their respective sub-sectors.
• JP Morgan Chase (JPM/”>NYSE: JPM)
It is the largest American Investment Bank and Financial Services providing agency. Its headquarters are located in New York. It provides valuable investment banking and asset management services. Its market capitalization is $492.4 billion and its dividend yield is 2.23%.
• Southside Bancshares inc. (SBSI/”>NYSE: SBSI)
It is one of the best stocks in the thrift and mortgage industry. It is headquartered in Texas. It provides consumer and commercial loans, municipality loans, etc. Its market capitalization is $13.97 billion and its dividend yield is 3.2%.
• MasterCard (NYSE: MA)
MasterCard is a leading financial services provider company having its headquarters in New York. It provides credit services for issuers of the card. It provides money on credit through its credit card. It is a conglomerate in the financial services and FinTech industry. Its market capitalization is $364.3 billion and its dividend yield is 0.48%.
• MetLife (MET/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAG5kfauMrmbCCJZONoO0YvMAIC7bSYBJzYQxfg6cu2sBehNAkhcApi_4eU-eIHPdu0R6zyCIgHEFrEVYJegCMRW7ZUor2OHPyTpwINXM0h-e772BsMq407iBreR4JVQWbZTiPY7K0bh3EXZ1uygcm-yM7YoiOLsmN9n3dhwB67oJ”>NYSE: MET)
It is an abbreviation of Metropolitan Life Insurance Company. It provides life insurance services and is the largest life insurance provider in the US. Its market capitalization is $56.6 billion and its dividend yield is 2.97%.
(NOTE: These stocks are not recommendations made by us. It is just a list of stocks of few industry leaders that are diversified in different sub-sectors. The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.)

Perils and Risks to be Aware of

The financial sector looks very profitable and remunerative. However, every good investment opportunity comes along with an equivalent amount of risk. There are certain risks, which need to be considered before investing in the financial services industry. I have detailed a few and the major ones:
• Insolvency risks: The biggest problem the finance sector is facing is the problem of insolvency of its borrowers, issuers and customers. Various banks and NBFCs are also turning out to be insolvent. Hence, the investor should consider the debt-repaying capacity, the leverage and the earnings of the company in which he is planning to invest.
• Economical risks: The investors also need to consider the policy followed by the Central Bank regarding the lending, borrowing and investing of finances. If the Central Bank sets high interest rates of lending, then no borrower/ issuer would be willing to borrow money from banks. High interest rates would also increase the chances of defaults and NPAs of banks as well as customers and borrowers.
• Reputational risks: You might have observed that many companies in the financial services industry have a subsidiary. If the subsidiary defaults to due non-repayment of debt or running into huge losses, then the parent company’s reputation would be at stake even though it would be have good amount of earnings under its bag. This might result in a huge fall in its stock price.

Key Takeaways

One has to consider the various fundamental aspects of the company before investing in the finance sector. I have listed down a few criteria on which an investor should focus before deciding whether to invest in a financial services company or not.
• Return on Equity
• Debt Repaying Capacity
• Retained Earnings
• Efficiency Ratio
• Price to Equity Ratio
If the word ‘crypto’ spikes interest in you, then this would be the perfect place to hop into – https://www.marketxlswp.com/decrypting-crypto-a-guide-to-cryptocurrency/
This sector has attracted investors for the past few decades, and now it has become a part of a majority of the investors’ portfolios.
MarketXLS provides a ready-to-use template for facilitating comparison between various sectors. This analysis and comparison are made based on various parameters. They include Return on Equity, P/E Ratio, Dividend Yield, etc.
You can click here to go to the template.
For more such exciting content, please visit https://www.marketxlswp.com/blog/

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.fool.com/investing/stock-market/market-sectors/financials/
https://www.investopedia.com/ask/answers/030315/what-financial-services-sector.asp

Image Source

https://www.google.com/url?sa=i&url=https%3A%2F%2Folc.worldbank.org%2Fabout-olc%2Funlocking-investment-and-finance-emerging-markets-and-developing-economies-emdes&psig=AOvVaw1OqtlLhtz_sN6J-zUEde76&ust=1622362315803000&source=images&cd=vfe&ved=0CA0QjhxqFwoTCNjQzOS47vACFQAAAAAdAAAAABAD

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Investing in the energy sector
Informative, Others

Investing In The Energy Sector

Introduction

The energy sector has prospered very swiftly in the past decade. Investing in the energy sector implies investing in companies, which produce and supply energy. These companies range from Oil and Gas drilling to providing coal and consumable fuels. It is a saying that the country leading in energy production and supply will be the world’s next superpower. The contribution made by the energy sector to the world’s economy is massive. It is an essential supportive factor for all sectors. Energy is required for the production and manufacturing of any item in today’s world. Its contribution has been crucial for the industrial growth of the world. There are many blue-chip companies in the sector, which have given excellent returns in the past decade.

Why Invest in the Energy Sector?

The energy sector is vast and expanding day by day. Energy consumption is a prerequisite for all sectors in today’s world. The energy demand is at its peak, and experts believe it will touch new highs in the upcoming decades. Here are a few reasons why the energy sector looks so lucrative for investing…

The base of all sectors

In today’s world, energy is the basis of all activities. Energy and fuel are required in the majority of manufacturing processes. The energy demand is rising day by day.

The enormous magnitude of the sector

Total energy consumption in the U.S. was nearly 100.2 quadrillion units. According to the IEA (International Energy Agency), the total investment made in the U.S. energy sector was valued at $350 billion in 2018.

Diversifies your portfolio

Investing in the energy sector would make your portfolio diversified. Diversity would prevent your portfolio from running into adverse losses during an unexpected market crash.

A large number of dividend-paying stocks

There are 188 dividend-paying stocks in the energy sector. Investing in these stocks would assure you a fixed income in the form of dividends besides providing capital gains.

Various choices for Investment

Equity stocks

This includes direct investment in the stocks of various companies.
Example: ExxonMobil (NYSE: XOM)

Exchange-traded funds (ETFs)

These are a collection of stocks, which track a particular index.
For example, Energy Select Sector SPDR ETF (XLE) – tracks the majority of the energy companies across the sector

Mutual Funds

These are funds, which track a particular set of stocks of the energy sector. Investing in mutual funds diversifies the risks of the portfolio.
For example, Fidelity Select Energy Portfolio

Green Energy Opportunities

Ten years from now, renewable energy sources will replace all the sources of electricity consumption and generation. Hence, this sector is ever-growing. It has been attracting investments from the entire world since the past decade.

Participants in the Energy Sector

There are a massive number of participants in the energy sector. This makes the sector a diversified one. There are 469 stocks in the energy sector. These stocks range from companies engaged in providing energy equipment and services to companies engaged in producing oil, gas, and consumable fuels.

Let us have a look at the participants in the sector.

Participants in the Energy sector

Energy Stocks to Look Out For

The companies in the energy sector are involved in the production and distribution of energy. This means the production and distribution of:

  • Petroleum products
  • Oil
  • Gasoline
  • Diesel fuel
  • Nuclear Energy
  • Biofuels
  • Hydropower, Solar power, and Wind power

Here is a list of a few appealing energy stocks to look out for.

TC Energy (NYSE: TRP)

It is one of the largest oil exporters and natural gas pipeline operators in America. Its market capitalization is $59.4 billion. It is a dividend-paying stock, and its dividend yield is 5.01%.

Phillips 66

Phillips 66 is an American MNC with its headquarters in Texas. It produces natural gas liquids and petrochemicals. Its market value is $28.1 billion, and it is a dividend-paying stock. Its dividend yield is 5.6%!

ConocoPhillips (NYSE: COP)

It is amongst the leading oil and liquefied natural gas producers in America. Its market capitalization is $42.7 billion, and its dividend yield is 4.3%.

Pioneer Natural Resources

Pioneer Natural Resources is a company committed to hydrocarbon and energy exploration and generation. Its market value is $16.7 billion, and its dividend yield is 2.2%.

ExxonMobil (NYSE: XOM)

Exxon Mobil Corporation is one of the most talked-about stocks of Wall Street in the past few years. It is an American oil and gas corporation. It has its business spread all around the world. Its market value is $254.2 billion, and its average dividend yield over the past few years 4.96%.

(NOTE: These stocks are not recommendations made by us. It is just a list of stocks of few industry leaders that are diversified in different sub-sectors. The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.)

Risks Associated

The lucrative sector also offers certain risks which need to be considered before investing in the sector. These are the three significant risks that need to be looked upon:

Dependency on Oil: The energy sector earns a majority of its revenue from oil production and sales. It is a significant source of income for many participants in the sector. Stock prices of energy stocks are very much dependent on the price of oil.

Recent performance: We have seen a considerable fall in the stock prices of the companies engaged in the energy sector during the pandemic. Energy stocks suffered disproportionately during the pandemic due to decreased demand. The situation worsened to the extent that oil traded at a negative value for a couple of weeks.

Emerging renewable energy: As environmental degradation is gaining attention day by day, renewable energy is gaining favor. Its demand is touching new heights. Due to this, traditional fossil fuel stocks will likely be less desirable.

Key Takeaways

One has to consider the various fundamental aspects of the company before investing in the energy sector. An investor should focus on a few aspects before investing: 1) Dividend Yield, 2) Debt to Equity Ratio, 3) Retained Earnings, and 4) Current Ratio.

This sector has attracted investors for the past few decades, and now it has become a part of a majority of the investors’ portfolios.

MarketXLS provides a ready-to-use template for facilitating comparison between various sectors. This analysis and comparison are made based on various parameters. They include Return on Equity, P/E Ratio, Dividend Yield, etc.

You can click here to go to the template.

For more such exciting content, please visit https://www.marketxlswp.com/blog/

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.

The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.

The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.investopedia.com/terms/e/energy_sector.asp

https://www.kiplinger.com/investing/stocks/energy-stocks/601848/best-energy-stocks-to-buy-for-an-exceptional-2021

Image Source

https://www.wyattresearch.com/energy/

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Investing in IT Sector
Informative, Others

Investing In The Information Technology Sector

Importance of Technology

Technology has become very much advanced in today’s world. It is an important support activity of all sectors. It is the backbone of all the sectors. We are so much dependent on technology that we derive our necessities from it. Hence investing in the technology sector should be profitable as well as risky. Though technology has advanced rapidly in the past few decades, it is still in its beginner’s stage, and the best is yet to come. Thus, it will still boom in the future, making people and sectors more dependent on it. Since the coronavirus pandemic, most companies are running into losses, but the companies in the technology sector are making sky-high profits. This is because whether we work from the office or work from home, we will be dependent on technology for all the activities.

Why Invest in the IT sector?

The most important reason for investing in technology sector is that the technology sector is ever booming and is yet to achieve great heights. Hence, we can expect stocks to give huge returns in the long term.
The companies in the technology sector are at their all-time high. They have been performing exceptionally well since the pandemic has started.
Investing in the technology sector would make your portfolio diversified. It will prevent your portfolio from running into adverse losses during an unexpected market crash.
Tech stocks are growth stocks. This means that these stocks provide a good amount of return in the long term. Usually, they are valued at a high price, and investors have to pay a premium for these stocks because of the value and the returns they offer when the investors buy them.
It is the largest sector in the S&P 500, occupying a weightage of 27.60% in the index.
The sector contains opportunities for all types of investors, whether growth or value investors. Many stocks in this sector pay dividends regularly and provide growth as well. This ensures a guaranteed income for all the value investors.

Participants in the Information Technology Sector

There are a massive number of participants in the technology sector. This makes the sector a diversified one. There are 845 stocks in the information technology sector. These stocks range from companies in internet software and services to companies in semiconductors and equipment.
Let us first understand what the companies of these two sub-sectors do:

Components of the IT Sector

Before investing in a particular sector, we need to do research about the primary participants. The major components of the sectors are hardware and software. Both are interrelated and interdependent. The growth of software will result in the growth of hardware.

Let us have a look at the overview of the sector.

Participants in the IT Sector

Tech Stocks to Look Out For

In the past decade, we have seen considerable expansion and innovation in the technology sector. As a result, many stocks are showing good growth potential. I have listed a few exciting tech stocks that would fascinate you.
• Alphabet Inc. (NASDAQ: GOOGL)
Whenever anyone discusses about stocks in the technology sector, the first name that pops up in our minds is GOOGLE. It needs no introduction due to the brand reputation it has created, which is the biggest strength of the company. Its market cap is $1.54 trillion. It isn’t a dividend-paying stock.
• Apple (NASDAQ: AAPL)
It manufactures and sells electronic devices like iPhone, iPad, MacBook, etc. One of the biggest strengths of this Silicon Valley giant is its brand reputation and loyalty of its customers. The market capitalization of the company is $2.09 trillion, and it is a dividend-paying stock. The dividend yield of the company is 0.6%.
• PayPal Holding Inc. (NASDAQ: PYPL)
An online payment system facilitates online money transfers. Its biggest strength is its Strong Tech Background and its user-friendliness. Its market value is $297.5 billion, but it is not a dividend-paying stock.
• Broadcom (AVGO/”>NASDAQ: AVGO)
It is a firm that composes and designs communication chips used in an extensive range of electronics, which need connectivity via Wi-Fi, Bluetooth, etc. It is a blue-chip stock in the semiconductor sub-sector. Its market capitalization is $184.8 billion, and it is a dividend-paying stock. The dividend yield of the company is 3.24%.
• Salesforce.com (NASDAQ: CRM)
It is an incumbent in the cloud computing industry. It is one of the fastest-growing stocks of the S&P500. Its market capitalization is $199.7 billion. It does not give out dividends.
• Amazon (NASDAQ: AMZN)
Amazon is a blue-chip company in the e-commerce sector. It is a tech giant, which has a massive scope of growth in the future. Its most significant strength is its vast customer base and the value it provides to its customers. Its market capitalization is $166 billion, but it does not pay dividends.
• Qualcomm (NASDAQ: QCOM)
Qualcomm is an MNC with its headquarters in California. It creates and ideates software related to wireless technology. Its market capitalization is $144.8 billion. It is a dividend-paying stock, and its dividend yield is 1.89%.
• Microsoft (NASDAQ: MSFT)
It provides cloud-based internet services and a few mobile-friendly applications. It is one of the few trillion-dollar stocks on Wall Street. Its strength is its vast customer base. Its market value is $1.90 trillion, and its dividend yield is 0.91%.
• Tesla (NASDAQ: TSLA)
Tesla is an automobile manufacturing company having the latest technology. The famous industrialist Elon Musk owns it, and it specializes in manufacturing electric vehicles. Its market capitalization is $647.4 billion, and it does not pay out dividends.
• Alibaba Group (NASDAQ: BABA)
It is the Chinese equivalent of Amazon. It operates in the e-commerce industry and has a vast cloud division. Its market value is $4.62 trillion, and it does not pay out dividends.
(NOTE: These stocks are not recommendations made by us. It is just a list of stocks of few industry leaders that are diversified in different sub-sectors. The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.)

Risks Associated

Until now, we saw the benefits and pros of investing in the IT sector. However, there are always risks associated with investing. We will discuss out the risks of investing in the IT sector.
Inflation risk: No sector is spared from the risks of inflation and changes in the price levels. The tech sector is the most affected due to the inflationary risks.
Headline risk: Headline risk refers to the risks that arise due to price fluctuations caused by stories in the media, which might affect a firm’s reputation. For example, recently, a piece of news flashed in the economy said extraction of lithium from its ores degrades the environment. Due to this, Tesla’s stock price fell by a considerable margin. The reason behind it is that the electric cars, which the tech giant manufactures, run on lithium.
Legislative risk: Changes in the IT sector caused by the changes in the laws and legislation related to the sector result in such risks. One adverse law passed by the government, which would impose some restrictions on all the industries operating in the technology sector, would result in a massive fall in the price of all the stocks in the technology sector.

Key Takeaways

Technology is and always going to be the need of the hour for all industries. It is the base of the operation for all the companies. Without technology, there is no growth for humankind. The pandemic has made everyone realize the importance and the benefits of technology.
This sector has attracted investors since the past few decades, and now it has become a pre-requisite in every investor’s portfolio
MarketXLS provides a ready-to-use template for facilitating comparison between various sectors. This analysis and comparison are made based on various parameters. They include Return on Equity, P/E Ratio, Dividend Yield, etc.
You can click here to go to the template.
For more such exciting content, please visit https://www.marketxlswp.com/blog/

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.
The article is written to help users collect the required information from various sources deemed to be an authority in their content. The trademarks, if any, are the property of their owners, and no representations are made. All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own or affiliation with the trademark owner.

Reference

https://www.fool.com/investing/stock-market/market-sectors/information-technology/
https://www.kiplinger.com/investing/stocks/tech-stocks/602000/the-15-best-tech-stocks-for-2021

Image Source

https://www.fool.com/investing/investing-in-tech-stocks.aspx

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