Newcomer: NASDAQ tells investors the best ways to research stocks before buying

NASDAQ, which stands for “National Association of Securities Dealers Automated Quotations” is the number one screen-based electronic stock market in the US and the second largest in the world in terms of market capitalization. NASDAQ has more trading volumes than any other stock exchange in the world. So when the NASDAQ issues guidance or advice, you need to know.

Recently, NASDAQ has published a report, where they have recommended how investors should conduct detailed research before buying a stock. NASDAQ recommends 12 steps to thoroughly analyze a stock and has named it the NASDAQ Dozen.

What is the NASDAQ Dozen?

NASDAQ Dozen are the 12 steps to research any stock. These steps are,

1. Income

2. EPS or earnings per share

3. ROE or return on equity

4. Recommendations

5. Surprises in earnings

6. Expected growth

7. Income growth

8. The PEG ratio

9. Industry benefits

10. Days to cover

11. Negotiation carried out by persons with inside information of the company or inside information

12. Measurement of the rise or fall of the shares, or the weighted alpha

Here is a detailed explanation from the NASDAQ Dozen for analyzing a stock.

Income – This is quite simple and refers to the income earned by the business.

EPS – EPS or earnings per share is a mathematical calculation that is arrived at by dividing the company’s profit by the total number of shares. The BPA of a good stock is always high, but also check if the BPA is going up or not.

ROE: total profit or loss after taxes and interest, and divided by stockholders’ equity. NASDAQ recommends those stocks where ROE has increased for at least the last two years.

Recommendations – What do the experts say about this action? Since they are investigating all the time, it makes sense to find out.

Profit Surprises: Results are announced each quarter and analysts will always predict earnings or EPS for the next quarter. Now if you find that the actual EPS is higher than predicted, then you can conclude that this is a good stock to buy.

Forecast Growth – While it’s important to know past earnings, you should also know what the experts are saying about future growth prospects.

Earnings Growth – This is a projection of expected earnings growth over the next 5 years according to equity analysts.

PEG ratio: the ratio is obtained by calculating the share price, the EPS and the expected growth of the company. NASDAQ is asking investors to choose those stocks in which the ratio is less than 1.

Industry Profits – Company earnings should be compared to other companies in the industry to get an overall picture. If you find that the company is doing better than the industry average performance, then you should go ahead and pick it up.

Days to cover: How many days will it take for short sellers to hedge their positions? Of course, this should be based on the trading volumes of the shares.

Insider Trading – An analysis of whether company members are buying shares or not. If the managers are confident, they will buy the shares themselves.

Weighted Alpha: This is an assessment of the rise or fall of the stock over time.

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