- How to Determine the Net Income for Stock Equity Statements
- How to Draw Up an Equity Agreement Between Two Parties
- The Effect of Bond Rating Changes on Common Stock Prices
- The Economic Indicators for Equity Investing
- How to Use an Investment Portfolio to Calculate WACC
- What Factors Influence the Value of Preferred Stock?
The sooner an investor recognizes the likelihood for gains in a stock, the greater his chances are to profit from that equity security. While the financial markets can be unpredictable, investors can draw certain conclusions based on sentiment surrounding a particular company or sector in addition to economic conditions to determine whether gains are likely. A strategic way to determine whether a stock will rise is to assess whether an equity security is undervalued, because if it is, the stock price could surely be positioned for increase.
Investors have the option to buy and sell shares of a stock for a time before the markets open and after they're closed. As a result, investors can observe the way the markets are treating a stock in those sessions before buying shares during the formal trading day. In September 2012 upon launching its latest version of the iPhone, Apple's stock climbed higher in after-hours trading. That strength was an indication of the positive sentiment surrounding the company, and the following day Apple's stock priced increased more in the regular session.
When a stock is deemed undervalued, either by company executives, analysts or investors, it suggests that the equity security should attain a more reasonable market value in due time. Identifying these opportunities could lead to profits in the stock market. For instance, in July 2012 money manager Bill Greiner of Mariner Wealth Advisors recognized growth potential in the stock of Murphy Oil. He said the stock was inexpensive because the company had low debt on its balance sheet and was likely to post impressive quarterly profits later in the year, according to CNBC.
A merger announcement is an indication that a target company's stock, or the business being acquired, is likely to rise. Investors often celebrate merger and acquisitions transactions because these deals suggest companies have capital to spend. In 2011, when Google acquired Motorola Mobility, not only did news of the announcement cause shares of the latter to advance some 56 percent, but the buying spree also spilled over to other stocks, sending the technology sector higher, according to CNN Money.
While investors can observe indicators that stock prices will increase, trading activity can sometimes be surprising. There are times when a piece of good news, whether economic or corporate related, is so widely anticipated that the gains become built into a stock's value even before that event formally occurs. In 2012, when the financial markets were largely expecting monetary policymakers to provide a stimulus to the economy, experts feared that stocks celebrated that news too soon. While those fears were ultimately proved wrong, the concern is real. Investors run the risk of buying equity shares based on rumors and ultimately selling shares on the actual news, according to Reuters.
- graph image by Lulla from Fotolia.com