Modeling for Top Stock Picks in a Business Upswing

An understanding of business linkages is a great way to top stock picks as the market prepares for the bulls. Some models are more obvious than others. Improvements in energy efficiency, and alternative fuels are obvious gainers when crude prices rise as they have done during June and early-July 2008. However, the stock gains from subtle linkages are generally greater. India’s use of uranium to produce power for example will boost business prospects of engineering firms, construction companies, and of course, international uranium suppliers. This is why the powerful corporate lobbies of Washington are so extraordinarily keen that India signs on the dotted line.

Investment decisions based on macro linkages and politics are fraught with risks. Weather is the greatest creator and destroyer of stock values from week to week. Meteorology is not able to make reliable forecasts for more than a few days at a time. That is why forecasts of farm production can vary so widely. The smart stock investor will prefer models based on micro factors, rather than speculate on how central aspects of economies might move in future.

Executive actions are the most reliable drivers of business models. New brand launches, cost effectiveness initiatives, and investments in new capacities, are typical examples of signs that stock investors can use to spot top picks. Independent market surveys and management audit reports are generally the most objective sources of information in this regard.

Cash flows are also useful modelers. A rising stock market does not mean that competition will get any less. Companies with high retained earnings will hit the ground running as the business climate improves. Highly leveraged ones, and those with extravagant Payout Ratios may present attractive pictures, but will probably lack resources to glean and to hold market shares.

Put on fresh investing spectacles because the stock market is poised for take-off. Make sure that you have a ring-side view for this spectacular show.

Get Ready for Stock Market Take-Off

We have to put academic matters aside until further notice. The stock market nightmare that started with U.S. sub-prime in September 2007 is about to end. Some folks surface from slumber in stages. So may it be with stocks in July 2008. A market is up one day, and down shortly thereafter. This is not range-bound trading, but a gradual consciousness that dawn is on the eastern horizon.

Attrition strategies must now yield center-stage to rapid growth and vigorous profits. Business managers and stock investors should gird their loins to ride crests of demand waves. Balance and a sense of timing distinguish the best surfers. It will not help to buy the wrong stocks just because the macro outlook is so enticing. How can we find the right beach-head?

Foreign institutions may pour money in simply because the U.S. Fed backs them with cheap cash in dollars of declining worth. Corrupt politicians are limited to recycling ill-gotten gains through promissory notes managed by the trusted but incompetent. No bull run is famous for logic. Lookers-on could get hurt if they try the stunts that so thrill. The riddle of what to buy is clued by who buys. You cannot beat a buy-back by a block owner.

Stock market celebrities may have ego reasons to shore up their stocks. However, intelligent investing rather than emotions have made them successful in the stock market ring. They take-over stocks they once offered the market because they can see a bright spot hidden from public view. No business magnate increases stock-holding without sound reasons. You are well-advised to follow such herds.

Here is an example of a stock battered throughout June 2008, which has become a top pick following management buy-back in July 2008:

http://www.dlf.in/wps/portal#

There is a second approach to knowing when to start buying after a bear phase. Let us dwell on this tomorrow.

Discriminatory Cash Flow Management for Business and Stock Portfolios

The post before this one was about conserving resources to deal with extreme adversity. The aim today is to set priorities for whatever is available. Here are some starter ideas on how to use scarce funds for financial planning in the business environment of July 2008.

1. Favor probability over profit. Put money in deposits with reputable banks run by professional executives. Check on their control systems for derivatives, outsourcing, and speculation. Avoid the ones that curry favors from discredited members of an administration in the autumn of its mis-rule. Bonds of organizations that stick to budgets are other parking slots for cash relieved from the clutches of stocks on a slide.

2. Focus on children and other compulsions. Stay invested in food, beverages, clothes, footwear, educational supplies, pharmaceuticals, and security. It may appear contradictory, at first sight, to favor beer, tobacco, and entertainment. However, we need more stress relief not less when stranded on proverbial islands and beaches in the Pacific.

3. Fear nothing. Anxiety will only cloud your vision. Even bankruptcy may not be worse than what you have heard about Guantanamo. Material losses can be made good over time, provided that spirit and integrity remain intact.

4. Fight your irrationality. Conserving the contents of a water can in the desert is tough. You keep thinking that this may not last. That is right, but it is probably premature to blow the last of your resources today. Beware of mirages. TV anchors may have reasons to proclaim stock market rallies. Are you paid for this as well?

5. Find hidden help. Put your break from day trading to good use. Take an online course. Learn Chinese, Russian, or even Spanish. Start a web log better than this one. Contrive to meet by chance with old friends. There are sure to be some bargains in your garage-sales of better days.

The next step is to hit the stock exchange running once the sun breaks through again. Let us discuss this tomorrow.