Managing Portfolios with Fundamental Analysis

Advice to the Advisors

Sheaff Brock portfolio management fundamental research and analysis

Managing Portfolios with Fundamental Analysis

While technical analysts look for general stock movement patterns, fundamentalists look at individual companies, examining the earning potential and value of each stock. A corporation’s earnings, expenses, assets, and liabilities are all important factors, and fundamental analysts are looking for shares that may be undervalued at the present time by the investor community.

There are two categories of fundamentalist buyers, Sheaff Brock Managing Director Dave Gilreath explained in an interview with our Institutional editor:

1. The value fundamentalist looks at price-to-book, price-to-sales, and price-to-earnings ratios, seeking “good buys” in which the stock price seems set to return to “full value” in the near future.
2. The growth fundamentalist is seeking “movement”—What’s “new and different”? What’s “hot”?

Sheaff Brock, by and large, Gilreath explained, is a “value shop,” putting fundamental research first and foremost. Whether the particular portfolio is focused on selling puts, selling covered calls, or dividend growth and income, the backbone is always the fundamental research that drives portfolio choices. Based on the following, Sheaff Brock seeks to vet each stock pick thoroughly:

  • Are sales about to increase? Why?
  • How well is the company being managed?
  • How secure are the company’s physical assets (land/plants/stores)?
  • How well-experienced and trained is management?
  • How does the stock fare on the Revelation Investment Research downside risk assessments?

Even in the IntelliBuilD® Growth portfolio, in which the stocks are based on the Investors Business Daily IBD 50 list, stocks are individually screened for best fundamentals before ever being included in the portfolio.

Remember the old lyrics to the song, As Time Goes By? “You must remember this—a kiss is just a kiss, a sigh is just a sigh.” Well, from a portfolio management point of view, a stock is just a stock. But, as the song points out, “the fundamental things apply.” What Sheaff Brock fundamentalists want to know is this:

Is this particular stock being undeservedly under-rated by the investor community?

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