INVESTORS in the United States markets can select among over 2,800 stocks on the New York Stock Exchange, and more than 3,000 on the NASDAQ market. With close to 6,000 stocks to chose from, Securities Analysts play a vital role in evaluating companies and issuing research and opinions to the investing community.
A Securities Analyst is a person who evaluates and studies the financial instruments of stocks and bonds of corporations, and issues reports and opinions to assist investors in making investment decisions.
The Securities Analyst reviews publically available information such as periodic financial disclosures, industry news and company filings, and also communicates directly with the company by meeting its management and participating in company conference calls.
There are generally two types of Securities Analysts. A buy-side analyst provides research and recommendations for the investment managers of the company in which they work, which is typically an institutional investor such as pension or mutual fund. These recommendations would not be made available publically.
A sell-side analyst works for a broker-dealer, and indirectly for its trading customers, and their evaluations may result in recommendations on stocks, typically a rating of “buy”, “sell” or “hold”. The firm may see trading activity and investment banking deals based on the recommendations and thus this activity is usually highly regulated in most markets to avoid conflicts of interest.
Stock market analysis generally falls into two categories. Fundamental analysis attempts to find the intrinsic value of the stock by focusing on the economic outlook, analysis of the industry the firm operates in and the company’s financials. Metrics such as forecasted future cash flows, earnings, revenue growth rates, price to earnings ratio and dividend payout are considered along with economic conditions and industry competitiveness.
If the intrinsic value is lower than the market price, then the analyst will likely recommend the purchase of the stock. Fundamental analysis maintains that a security may be mispriced in the short-run, but the market will eventually recognise this and reprice the security correctly, thus resulting in a profit for investors who traded the mispriced security.
Technical analysis incorporates behavioural economics and quantitative analysis to forecast the direction of prices through the study of past market data, primarily price and volume.
Among the techniques of technical analysts is the study of charts to identify price patterns and market trends in order to exploit those patterns. In addition to the use of market indicators such as up and down volume and advance decline data, technical analysts track investor sentiment, whether bullish or bearish.
Technical analysis suggests prices trend directionally, up down or sideways and that investors collectively repeat the behaviour of the investors that preceded them. Technical analysis is not concerned with the value of the stock and maintains that all information is already reflected in the stock price. Forecasts of prices are extrapolations from historical price patterns.
Initially only three stocks are expected to be listed on the Cambodian exchange. As listings increase so will the demand for research. This will create both employment openings and an opportunity for brokers to provide value added services to their clients.
Anthony Galliano is Chief Executive Officer at Cambodian Investment Management.