Strengths of Fundamental Analysis

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Long-term trends

Fundamental analysis is good for long-term investing based on very long-term trends. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who select the right industry groups or companies.

Value Spotting

Sound fundamental analysis will help identify companies that represent good value. Some of the most legendary investors take a long-term, value-oriented view. Graham and Dodd, Warren Buffett and John Neff are considered the champions of value investing. Fundamental analysis can help find companies with valuable assets, strong balance sheets, stable earnings and staying power.

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Developing business acumen

One of the most obvious, but less tangible, rewards of fundamental analysis is developing a thorough understanding of the business. After such careful research and analysis, an investor is familiar with the key revenue and profit drivers behind a business. Revenue and profit expectations  in mt5 download can be powerful drivers of stock prices. Even some techies will agree. A good understanding can help investors avoid companies that are prone to misses and identify those that continue to deliver.

In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. The price of a stock is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (technology), low-risk (utilities), growth-oriented (computers), value-oriented (oil), non-cyclical (consumer staples), cyclical (transportation), or income-oriented (high yield).

Know who is who

Stocks move as a group. When investors understand a company's business, they can better position themselves to categorize stocks within their particular industry group. Business can change quickly and so can a company's earnings mix. This happened with many of the Internet-only retailers, which were not really Internet companies, but were pure-play retailers. Knowing a company's business and being able to categorize it can make a big difference in relative valuations.

First Interim Conclusion:

After all is said and done, an investor is left with only a handful of companies that stand out from the crowd. As the analysis process continues, an understanding of which companies stand out as potential leaders and innovators will emerge. Beyond that, other companies would be seen as laggards and unpredictable. The final step of the fundamental analysis process is to synthesize all the data, analysis and insights into an actual selection.

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