Stock Market Slideshow 2016.pptx

What are Stocks?

Stock is a share of ownership in the

assets and earnings (profits) of a company.

Not all companies are publicly held. A stockholder (shareholder) is

part-owner of the business he/she owns stock in.

Stock market is a general term used to

Stock

When a company would like to grow, it issues

stocks to raise funds and pay for ongoing business

activities. Can be used to:

• Buy other businesses, build new factories/stores, expand

into new markets, research and develop new products, etc.



It is popular because:

• Big chunks of money can be raised quickly.

• The company does not have to repay the money. • Paying dividends is optional.

 _{Dividends are distributions of earnings paid to stockholders}

How Do You Make Money Owning

Stocks?



Capital Appreciation

•

The share value increases.

•

If you sell the share at a higher price than you

paid for it, you make a profit.



Dividends Payments

•

Dividends are a portion of the company’s profits

paid out to its shareholders.

•

Not required of the company. Microsoft first

paid a dividend in 2003. They were founded in

1975.

Down?



The stock exchange is organized

based upon the laws of supply and

demand

•

The more demand for a product with a

limited supply, the higher the price will

become.

•

Ex: Timbers tickets for a Sounders game at

What Affects Demand For Stocks?



A: good or bad news about the economy, industry or

individual business.



Good news: exciting new products, growth in sales,

increased profits, expansion of the business (new stores,

new markets), good legal decision, etc.



Bad news: lawsuits, defective products, declining sales,

decreasing profits, bad publicity, change in leadership,

new laws that restrict the business, etc.



Economic news: unemployment, home construction,

Risk vs. Return



On average, stocks have a high

rate of return

• The increase or decrease in the original purchase price of an investment



Higher rate of return = greater risk

Common and Preferred

Stock



Common stock – shares or units of ownership

in a public corporation

•

One vote per share owned to determine company’s

board of directors.

•

No guaranteed dividends



Preferred stock – shares which pay fixed

dividends and have priority over common stock

Priority over common stock holders for claim to assets

No voting rights

•

Guaranteed dividends – fixed amount

Stock Classifications



Not all stocks behave the same way. Stock are

categorized based on these differences and can serve

different investing strategies.



Seven basic classifications

• Growth, Income, Value, Cyclical, Countercyclical, Speculative,

Blue Chip



Some stocks can be classified into more than one

category.



A variety of types of stocks are necessary for a

Growth Stock



Stocks of companies that are

looking to grow and expand. They

are working to increase revenue

and profits at a fast rate.

•

New companies with expanding product

lines

•

Usually does not pay dividends

•

Beta is 1.5 or higher

•

Examples: Starbucks and Google

Income Stock

Stocks of companies that have a

history of paying above average

dividends to investors.

• Company only retains small portion of profits • Companies with a steady stream of income

such as utility companies or very established companies.

• Examples: AT&T, Verizon, Proctor and Gamble • Beta is less than 1.0

Value Stock



Stocks of companies which have a low

market price in comparison to historical

earning records and value of assets

• Viewed as investment bargains. Like finding a

sale at the “stock store”

• Why undervalued? Perhaps due to

unglamorous industry, short-term scandal, other hiccup.

• Warren Buffett is a value investor. • Examples: McDonalds

• Have high dividend yield, low price-to-earnings

Cyclical Stock



Cyclical stocks are

influenced by changes in

the economic business cycle

•

When the economy does well,

these companies have

increasing sales and vice versa.

•

Companies which operate in

major consumer dependent

industries

 _{Automobiles, housing, airlines,}

construction, luxury items, etc.

Defensive/Countercyclical Stock



Countercyclical stocks are companies

which give consistent returns even

when the economy is suffering

•

Products are always in demand

•

Good for investors who want dividends

•

Examples are utility companies and grocery

stores

Emerging/Speculative

Stock



Speculative stocks are companies

with potential for substantial earnings

•

Very high risk stocks

•

Small, new companies

•

Examples include video game companies,

alternative energy companies

Blue-chip Stock



Blue-chip stocks are from

nationally recognized

companies with long records of

profit, dividend payments, and a

good reputation for

management.

•

Less risky

•

Grow at a consistent rate

•

Examples: McDonalds, Wal-Mart

Market Indexes

To help track how the stock market as a whole is doing, certain stocks

are grouped (called an index) to measure the changes in prices over time.

They’re a benchmark for the stock market.

Major Indexes:

Dow Jones Industrial Average (“DOW”)

• Lists the 30 leading industrial blue chip stocks Companies of the Dow Jones

How the Dow has changed

Standard and Poor’s 500 Composite Index

• Contains stocks of 500 of the largest US companies

• More accurate than DOW because it evaluates a greater variety of stock

NASDAQ Composite

• More tech companies, smaller companies.

Ups and Downs



A

bull market

is a prolonged

period of rising stock prices and a

general feeling of investor

optimism.



A

bear market

is a prolonged

period of falling stock prices and

a general feeling of investor

pessimism.



Note: Don’t panic. Don’t try to

Brokers or Brokerage Firms

An individual or firm that charges a fee or commission

for executing buy and sell orders submitted by an investor.

There are full-service and discount brokers. • _{Full service provides investment advice}

• _{Discount does not provide advice}

Examples:

• _{Full-service: Edward Jones, Merril Lynch, Morgan Stanley}

• _{Discount: Charles Schwab, E*Trade, TD Ameritrade, Sharebuilder}

Brokers have “seats” on exchanges and are the middle

person between you and other sellers/buyers.

In order to buy stocks, you need to create a brokerage

Organized Exchanges



Exchanges are “places” where buyers

and sellers can trade investments.



Each exchange has a limited number

of seats available which brokerage

firms purchase to give them the right

to buy and sell stocks on the

New York Stock Exchange



New York Stock

Exchange (NYSE)

•

Oldest and largest, began in

1792

•

1,366 seats available

•

2,800 companies

•

Orders come through

brokerage firms to floor

brokers where the stock

trades. A specialist

NASDAQ



National Association of Securities

Dealers Automated Quotations

•

Stocks are traded in an over-the-counter

electronic market

•

4,000 small companies

•

More volatile because companies are young

and new

•

Microsoft, Cisco, Dell, Intel, Oracle trade on

Researching Stocks



Hopefully, we wouldn’t buy a car based

only on it’s outer appearance or on

advertisements from the manufacturer.



We should inspect it, read about it, test

drive it and ask questions about it.



The same thing applies to investing in

Stock Study

Do your own homework. Know what you are buying.

Study company data and news to answer these

questions:

•What is the current “state of affairs”?

•Are there any “red flags” that indicate the company has

issues?

•Does the company have a record of consistent growth?

(earnings per share, revenue, dividends)

•Is the company making money? •Can the company cover its debt?

Market Capitalization (Cap)

The total value of a company’s outstanding shares.

Market Cap = number of shares x price per share

Ex: Google’s Market Cap 2015 = 288m x $553.95=$372.42b Today = $547.1 billion

Tells us how large a company is and indicates its value.

Investors want to build a portfolio with companies of various sizes.

Small Cap = $300m-$2b - less stable Mid Cap = $2b-$10b

Earnings Per Share



Tells us how much income a company has

available to pay in dividends and reinvest as

retained earnings on a per share basis.

After tax annual earnings (AKA profits)

= Earnings per share Total number of shares of common stock

•

More simply, it tells us how many dollars in profits

there were per share of stock. In general, the higher,

the better.

Price/Earnings Ratio



Price/earnings ratio

is the relationship

between the price of one share of a

stock and the annual earnings of the

company (P/E ratio)

Price per share

= P/E ratio

Earnings per share of stock

•

Most widely used critical measure of a

stock’s price

•

Represents how much an investor is willing

P/E Ratio Continued

•

Most companies have between a 5-25 P/E ratio

 _{7-10 P/E ratios are financially successful companies}  _{15-25 P/E ratios are rapidly growing companies}

 _{40-50 P/E ratios are speculative companies}

•

Lower P/E stocks pay higher dividends and have

less risk, lower prices, and slow growth

•

High P/E ratios indicate the firm is expected to

have a lot of growth in the future

Dividend Yield



Dividend yield percentage is the

dividend expressed as a percentage

of the price of the share

–

If a company paid $1.25 in dividends for a

stock with a market price of $50.00, the

dividend yield percentage would be 2.5%

(1.25/50)

–

Helpful to know how much income to expect.

A company paying high dividends is not

Year to Date Percent

Change

-16.3 43 36 AAR .33 2.5 22 147

9 40 37 42 .027

•

Year to date percent change is

the stock price percent change

from January 1

of the current

year

–

If a stock was $43.00 on January 1

52-Week High Low

YTD

% 52-WeekHigh Low

Stoc

k Div YLD% P/E 100sVol High Low Close ChgNet

-16.3 43 36 AAR .33 2.5 22 147

9 40 37 42 .027

52-Week High & Low shows the

highest and lowest prices the stock

was sold per share during the last

52 weeks

Stock Name

YTD

% 52-WeekHigh Low

Stoc k Tick

er

Div YLD

% P/E 100sVol High Low Close NetChg

-16.3 43 36 AAR .33 2.5 22 147

9 40 37 42 .027

Stock – Each company’s stock is

provided with an abbreviated

Dividends per share

YTD

% High Low52-Week Stock Div YLD% P/E 100sVol High Low Close ChgNet

-16.3 43 36 AAR .33 2.5 22 1479 40 37 42 .027

•

Dividends per share is the total

cash paid to common

stockholders per share annually

–

Helpful when determining the type

of stock

Dividend Yield Percentage

YTD

% 52-WeekHigh Low

Stock Div YLD

% P/E 100sVol High Low Close ChgNet

-16.3 43 36 AAR .33 2.5 22 1479 40 37 42 .027

•

Dividend yield percentage is the

dividend expressed as a percentage

of the price of the share

–

If a company paid $1.25 in dividends for a

stock with a market price of $50.00, the

dividend yield percentage would be 2.5%

(1.25/50)

–

Helpful to know how much income to expect.

Price/Earnings Ratio

YTD %

52-Week High Low

Stoc k Div YLD % P/E Vol 100s Hig h Low Clos e Net Chg

-16.3 43 36 AAR .33 2.5 22 1479 40 37 42 .027

•

Price/earnings ratio is the closing

price of the share compared to the

annual earnings per share

–

If the stock’s market price is $50.00 and the

earnings per share is $2.25, the P/E ratio is

22.2

•

For every dollar the company earns, the

stock’s market price is worth $22.00

Volume

YTD

% High Low52-Week Stock Div YLD% P/E Vol High Low Close NetChg

-16.3 43 36 AAR .33 2.5 22 1.4 mil 40 37 42 .027

•

Volume is the number of shares

traded in the day.

•

Volume helps to show the stock’s

liquidity (ease of trading) and

High and Low

YTD

% 52-WeekHigh Low

Stoc

k Div YLD% P/E 100sVol High Low Close ChgNet

-16.3 43 36 AAR .33 2.5 22 147

9 40 37 42 .027

Close

YTD

% 52-WeekHigh Low

Stoc

k Div YLD% P/E 100sVol High Low Close ChgNet

-16.3 43 36 AAR .33 2.5 22 147

9 40 37 42 .027

Net Change

YTD

% 52-WeekHigh Low

Stoc

k Div YLD% P/E 100sVol High Low Close ChgNet

-16.3 43 36 AAR .33 2.5 22 1479 40 37 42 .27

•

Net change is the difference

between the closing price of the

share from the prior day and the

current day

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