Portfolio diversification is a technique that reduces risk by allocating your capital among various financial instruments, industries and sectors.The idea behind it is that when there is particular news about something it will affect each of your investments in a different way. It is important to bear in mind that diversification does not mean that you are not going to lose, but it decreases statistically the risk of loss. (I am going to show that in a minute). Diversification is the most important component for reaching long-term financial goals, or as you saw in the last seminar the time span that we are talking about is 6-12 months.

First, I want to show you the simple mathematics behind diversification (for all of you first year economics students). Consider that you have two industries e.g. oil and beverages.And at some point each of them issues shares:

Share „Oil“ is $3 and 4$ respectively for two states and are giving a probability that an asset is going to end up with some particular value e.g. in our case let’s suppose that we have 50% probability for both cases that the share prices will end up either $3 or $4 at a point in time. ( Note that it may not be just two values but instead it could be every single value of real numbers and you just give probabily to each of it – it is very strong assumption and no living creature (yet) can give a 100% objective price predictability , we are only using it to show you why diversification protects you from risk). Let’s put in a diagram to show you why :

	Bad state	Good state
Oil industry shares	$3	$4
Beverages ind. Shares	$3	$4
	Prob of end price of share=50%	Prob of price of share=50%
Buy 2 shares in Oil ind.	(0,5x3 +0,5x4)/2= 3,5	(0,5x3 +0,5x4)/2= 3,5
Buy 2 shares in Beverage ind	(0,5x3 +0,5x4)/2= 3,5	(0,5x3 +0,5x4)/2= 3,5
Buy 1 share in oil and 1 in Bev.	(0,25x3 +0,25x4+0,5x3,5)/2= 3,5	(0,25x3 +0,25x4+0,5x3,5)/2= 3,5

So, now imagine that you are a the most powerful computer on Earth and you can all the probabilities how a share price would be moving. Look at the two scenarios , where you either buy two shares of one ind. or one in each of the two. The expected outcome is the same- it is 3,5, however, the probability of you ending up with either $3 or $4 is smaller if you diversify. This does not mean that you are boring investor, but it means you are... well it could mean a lot things really. Some investors do believe in diversification others don’t. The proponents argue that in order to get e.g. in our table in the 25% probability that you get $4 for both industries then this mean that you have to research twice as many things as you would if you choose the huge 50% gain of only industry.

One additional thing to what we have covered in the seminar would be a situation of when diversification cannot help you. This is what is called "systematic" or "market risk," or undiversifiable risk is associated with every company.You cannot actually take measurements against it because you have already bought a share andpossible causes are things like inflation rates, exchange rates, political instability,etc.. This type of risk is not specific to a particular company or industry, and it cannot be eliminated.

As I said, diversification is not about the different companies. It could be every single type of asset that exots. Different assets - such as bonds and stocks - will not react in the same way to adverse events. A combination of asset classes will reduce your portfolio's sensitivity to market swings. I tried to find a picture of how a portfolio overall performance would look like versus individual stocks price movements. The own share price is much more volatile than the overall performance. However, dicreased volatility does not mean gain.

One good example here would the bond and equity markets move in opposite directions, so, if your portfolio is diversified across both areas, unpleasant movements in one will be offset by positive results in another.

A natural question would be to ask how many stocks should be included in order to ensure sufficient diversification. Obviously owning five stocks is better than owning one, but there comes a point when adding more stocks to your PORTFOLIO ceases to make a difference. There is a debate over how many stocks are needed to reduce risk while maintaining a high return. The most conventional view argues that an investor can achieve optimal diversification with only 15 to 20 stocks spread across various industries. If you have a lot of assets, on an aggregate level, your overall performance will be moving just like the famous indexes

Diversification can help an investor manage risk and reduce the volatility of an asset's price movements. Remember though, that no matter how diversified your portfolio is, risk can never be eliminated completely. You can reduce risk associated with individual stocks, but general market risks affect nearly every stock, so it is important to diversify also among different asset classes. The key is to find a medium between risk and return; this ensures that you achieve your financial goals while still getting a good night's rest.

Support and Resistance line (basics) , SMA

The last educational seminar is over. Congratulations for those of you who were patient enough to take part in our weekly meetings. We really tried hard to present the information in a consistent way and it was a pleasure for us to prepare ''Investing 101'' ! 

I guess there were many questions left after our last seminar. There were many new things ,so now you are heavily loaded with information for researching. Make sure that the last session is clear to you because the content is a mixture between fundamental and technical analysis, two powerful tools that will help you a lot in the future.

You have covered support and resistance line, Simple moving average (SMA) and some important financial ratios. In this post, I will mainly talk about the first two. For all the ratios look at the definition sheet that Louis Savoret prepared for you and I will give links in the end for more explanation on the ratios on my blog.

Support and Resistance lines are part of technical analysis that every investor needs to know. I am going to give you the basics and just to point out some a bit more advanced concepts that some traders are using. Resistance line is where the price of the share prize tends to stop growing up i.e. it "resists" to go up further for a fixed period of time. The time period could be quarterly, annually, etc. 

With the diagram above you can see that the price is not crossing the Resistance line for one year. I said that the periods are normally quarterly or annually, however, analysts are making these technical lines so that they can be representative- they are giving you information about the price movement. When judging entry and exit investment timing using support or resistance levels it is important to choose a chart based on a price interval period that aligns with your trading strategy time frame.

Support line is the price level which, historically, a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock. And it makes sense because everyone want to "buy low sell high " . In other words if a stock price is moving between support and resistance levels, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support.

Simple Moving Average (SMA) . The name explains it quite well but still I will put some notes here. As you already know we are using finviz.com quite a lot . I will show you how the percentage number is formed : 

SMA= ( (percentage change day 1) + (percentage change day 2) +...+ ( percentage change day n) )/n

But it is simple moving average, which means that after one day the first number will be the day 2 change and the last number will be percentage change n+1 day . On finviz.com there are given for 20,50 and 200 days . They are lines and as you can imagine the 200 will be less volatile line where as 20 days SMA will be more twisted. Look at the example (ticker:HERO ) :

From the example you can see that SMA20 is -4,93% and SMA200 is -57,68%,which means that the price downward movement has slowed down. This does not give us much information because we do not have the fundamental analysis of the company but it could be e.g. a sign of changing the trend to upward movement. It is important to note that when two SMA lines are crossing this is a signal that there is either a slowdown in the trend or even a future trend change e.g. from downward to upward. Most of the websites are not using SMA but this could a strong tool for the stockscreener, especially when you are looking for a growth stock.

There are a few more things that I want to share. There is a book that is particularly good for those of you who want to learn more about technical analysis "George Lindsay and the Art of Technical Analysis: Trading Systems of a Market Master". It is recommended reading for me by the president of the society Jan Svenda. His comments are: "Although sometimes bizzare and crazy it gives us a nice exposure how the technical people think". 

Do not forget to look at the links that I gave especially the first two because there are things that are used by professional traders. 

Links:

1. I strongly recommend the following side for technical analysis. You can use daily volume,average true range. There are also handful drawing tools that you can make your own analysis. Check it out!  www.hotstockmarket.com

2. Technical analysis tools and more information on climaxes, buy/sell signals READ IT! http://www.investors.com/images/promotional/climaxtop_booklet.pdf

3. Post for Quick and Current ratio on my blog: 

http://surreyinvestingsociety.blogspot.co.uk/2014/03/current-and-quick-ratio.html

4. PEG ratio http://surreyinvestingsociety.blogspot.co.uk/2014/03/peg-ratio-further-comments.html

2. Recap on the 2nd SIS seminar

Dear readers ,

On our weekly seminar on Tuesday, we covered some really interesting topics. In the preparation of the seminar, we knew that the content would be a lot. This is why I am here to comment on the material and to give you some extra information.

We talked about the well known platform Plus500. It is a good start for everyone who wants more practice on a demo account. Compared to other popular platforms , Plus500 has higher commission fees for financial transactions and this can be partially explained by the fact that the minimum deposit that you can make is relatively low, which is 100 euro. Nevertheless, they provide you with free demo account where you can create your own portfolio. The companies listed in the platform are not many, mostly the big market cap. companies, but you can trade most commodities, Forex, exchange funds and even Bitcoin, (a so-called virtual currency) one interesting alternative of trading.This is how the platform looks like- it is really simplified and if you are a beginner this is the perfect choice for you to make a trial :

What really matters is the three main types of stocks that you will always identify clearly, when you build your portfolio. Strictly speaking, each pick could be a different  combination of the three. Here they are:

The dividend yielders are normally companies with huge market capitalization. A dividend yield is paid annually and it is measured as a percentage of what is paid for each dollar that you have invested for positions in equity market. These companies do that with the aim to satisfy customers and attract even more investors. The interesting thing is that there are proponents of the belief that dividends yield attract investors , in particular the big investors. The belief is that investors are looking for a secure income stream such as investing in bonds. In planning your finances , you want to have some predictability on your stream i.e. dividend yield is a number that changes over time. Moreover, dividend yield is taxed more than what you would accumulate as a capital gain from a trade.

One example that you were presented during the seminar was Caterpillar (ticker:CAT , market cap:62bn. ) . One thing to one is that this company has some volatility and it is relatively a lot bearing in mind the market cap. of the company. So, you can buy it for two reasons : the annual dividend yield and the potential growth as you can see from the graph for the last year :

The growth stock is a company stock that tends to increase in capital value over time. Those kind of stock requires extensive research and they cannot be summarized as large market cap. or small market cap. . There are different stock screeners indicators  but here is a sample one taken from finviz.com : ( the screener is provided by Todor Hristov )

The numbers that are on this screener are:

1. P/B, or price to book ratio which shows the value of the share after a company is liquidated i.e. it shows to some extent the real value of the share.

2. Net profit margin is calculated when you divide the net income of the company over its revenues. It indicates how much a company hold for each dollar it makes. The example with Caterpillar , which has a profit margin of 7% , which means that for one dollar that it makes , it holds 0,07 cents.

3. P/E is defined by the current price of the share over the earnings that the company is making for the same share . It it is good to have it under 15 because that shows undervaluation i.e. a potential growth stock. However, bear in mind that this could possibly ''hide'' some opportunities for a growth stock. An example of that would be companies in the IT sector, where P/E is above 15.

4. Sales growth past 5 years - you want to make sure that the company is operating and it is selling something.

5. Return on equity - this indicator reveals what is the company doing with the money that the company has accumulated from the investors.

6. Insiders Transaction - it has to be positive because you want to make sure that the insiders ''like'' their assets. If insiders transaction is negative then this mean that the managers/group presidents/CFO's ,etc. no longer want to hold their positions. You can always find the most recent transactions on finviz.com and here is what you can see for CAT :

7. Sales growth qrt. over qrt. , this is the growth in revenue over the quarters . It is helpful to use it because you can see that the company has positive sales. It is good if it is just positive because if it for example more that 30% then you may be listed only stocks that are already overvalued. Remember , you want strongly undervalued stocks not stocks that have already ''exploded'' !

8. Current Ratio - it shows if a company is able to pay its short term obligations. you can add it for your stockscreener because it ensures you that the company has a backup in case of e.g. market problems, stagnation .

I think this is one good growth stock screener for a beginning.

A speculative stock is something else to look at. I am not going to give a sample stock screener because the indicators could be quite diverse. A such stock is must be a short term because it could either volatile or it could be a company that is about to go bankrupt, each time the scenario is different with this kind of stocks. If you remember the example during the seminar with Radio Shack. Jan Svenda, the president of the society, bought it when he found interesting articles about the future of the company. A hedge fund bought some of the stores of the retail companies. He was there for the upward trend. Although, the overall upward movement was 300% , he was able to catch 150%, which is a lot just for a few days/one week. He found it, he read it, he saw the opportunity and BAM... he bought it at the right time. it feels like you see the trend you buy it but there is a lot of research behind it. I can give you one advice: there is the so-called 8K,which is the events/aquisitions ir everything that has happened in the company over a period of time. Each company is obliged to do that by the U.S. government. You can find those financial statements online.

So far, we have talked about only about buying shares, however , there are other alternatives that you can use . One that we saw during the seminar was shorting a stock . First of all, not all companies' shares can be shorted. For each different company, it is indicated whether it is shortable. To short a stock is when you borrow the stock from your broker and then sell it . So, why would you do that at all? For example, if the price of a stock is 100 dollars and you borrow it. Immediately after that you sell it and you have 100 dollars in your account. But the price falls to 50 dollars. Now you have to pay to your broker ONE SHARE. Which means that you have to give him 50 dollars-> which means that you are left with 50 dollars profit. just because you predicted downward movement you made money out of it . Amazing ! I am using really untechnical language because sometimes people get confused by this. Basically, you are researching the company '' the other way around'', you are first selling your stock and then you buy it. One more thing that you should know is float short, which is the percentage of shares sold short. You can always find this indicator on the list at finviz.com . You can use float short to pick a company that is heavily disliked by the trend and you can make your fundamental research on it and take a decision to go short. One point that was made during the seminar was that if a company overstate its earnings this can result in investors think that a stock will go down.

This is the content that we had on our seminar. I think it was one good post for you all keen investors.See you all on our next tuesday session !

Plamen Filipov

SIS Committee

1.Review of Investing 101

Hello everyone ,

I hope everyone enjoyed the first seminar . This will be a review on what we have covered in the seminar plus additional information.

OK , so , we will start with the reason why you would invest in equity markets at all. If you hold your money in a e.g. saving account your interest rate on money would be somewhere between 0,85 and 0,87 . (  Ally Bank (0,87%) , American Express (0,86%) and Sali Mae Bank(0,85%) ) ,which is a yield that is accumulated annually. There are many investment options if you want to increase your gain. You could invest in bonds, Forex , commodities , mutual funds, Bitcoin , etc. . But , investing in stocks provide you with many advantages. One is that, opening a brokerage accounts do not require investors to spend a fortune on it. In fact, you will need somewhere between 1000 and 2500 dollars to open an account , depending on the broker. However, if you invest more than that your commission on buying stocks will be less. It is good when commission is low because this gives you more flexibility. Let's look at a sample that shows how much you would spend on each transaction depending on the money that you have invested.

Money invested in the acc.	1000	2000	3000	4000
Commission	15$	10$	5$	1$
Money invested in Stock 1	300-15	600-10	1000-5	1200-1
Money invested in Stock 2	300-15	600-10	1000-5	1200-1
Money invested in Stock 3	400-15	800-10	1000-5	1200-1
Money lost in commission	45	30	15	3

If you open an account with 1000$ , this means that you have to pay 15$ each time you buy or sell a stock , which makes you less flexible to react on movements. What do I mean by "flexible"? Well, if you want to maximize profit you will definitely want to be able to buy and sell positions at different times. Here I will give one good example with a graph:

I will show you the advantage of being flexible over your assets. Looking at the graph, you buy 200 shares at the beginning i.e.. 1.30x200=260$ . After that you sell 1.98x100=198$ and you still have positions . This way you will make profit of 1.98x100-1.30x100= 68$ . And vice verse , when the price strike low you can add more positions in your portfolio. However , in order to be so flexible , you need low commission , there are a lot of advantages of that. 

As you have already heard ,the companies that you invest in can vary a lot and they could be many industries. You can see the list on most fake platforms such as finviz.com ( the one that we are going to use most of the time ) . 

We will primarily focus on US equity market . Just a couple of words to say about NASDAQ and NYSE. The former is the largest stock exchange in the U.S.;it has been found in 1970s ;with more that 3000 listed equities, it mainly includes companies that are more IT based .The latter, NYSE, is again American stock exchange , which has the largest market capitalization in the US. The reason , why are focused on the two stock exchanges is that they have the biggest market cap., which gives one huge advantage- it is easy to find the information that you need. As you will see, there are a lot of articles about all the stickers listed in NYSE and NASDAQ and this will help you substantially for your fundamental analysis. 

As it has already been metioned in the first seminar , we will be using a lot of different websides to find what we are looking for ; here I will put some of them just as a good starting point for you:

1. Finance.yahoo.com - this is where you can get a lot of information for financial statements of the company , you can get macro and micro news about a particular sector or just an individual company, you can compare different graphs to find relation between e.g. two competitors - there are many tools that you can use.

2. Finviz.com - maily used for the stockscreener where you can add , here is how the screener looks like :

If there are 6955 , there must be a way to find the profitable one , the speculative one and the divident yielder ... -we will talk about each of the three types in the upcoming sessions. Finviz is also used for finding good news for a particular company from very diverse resources e.g. Forbes , FT , seeking alpha , Reuters ,etc. And also you can use recommendation( underperformed/ourperformed/hold)from financial analysists as a start point of your research. However ,sometimes this can exclude some really good opportunities , so focus on what you see as undervalued/overvalued ,which will come clear with time. 

3. Marketwatch.com - it is good for macro news , for example , the top headings that I see today 16.10.14 are "Warren Buffet does not show signs of worrying about this market" , or "If the bull market as a savior , this is what it is - Risk of global deflation ... "  or "William Watts: here is what is really behind the market meltdown. " , as you can see all the news are macro oriented .You can aslo see, which markets are opened and closed at the moment and how are the main indexes traded. And here is your first article on QE , something that you will always read about  http://www.marketwatch.com/story/bullards-surprising-suggestion-to-continue-qe-lifts-markets-2014-10-16?link=sfmw_fb

4. Seekingalpha.com  - it both used for macro and micro news but we are going to use it mainly for the micro news since there are really extensive articles made by thrustworthy analysist and even the president of Surrey Investing Society has already created a few articles for the famous website. You can be notified if there are any new articles for any of the companies on your portfolio or on your watchlist ( stocks that you currently research and you are waiting for major movements in the stock price) 

5. Investopedia.com and gurufocus.com - used for terms , concepts and even watchlist of the biggest investors . There are many interesting things that you can learn about the investing world.i strongly recomment these two to be used by beginners as an addition to the books that you are reading . If you do that , I can guarantee you that you can advance really quickly. Investopedia gives explanation of e.g. how financial ratios are formed and what numbers are included in them . Gurufocus is good for e.g. explaing discounted cash flow, book value, business growth rate,terminal value ,etc. . It is really easy to start your research , you just have to start once ! 

Those were the 6 main websites that we will always use our base for research but there are really many other good resources such as google finance, Financial Market News MNI , Swiss national Bank ,etc. 

There are two approaches that we saw in the first session and these are Fundamental approach and Technical approach. A couple of words for the two : the technical approach relies heavily on chart reading , support and resistance lines, candlestick bars ( hammer , inverterd hammer - things that describe the candlestick bar ) BUT , there are things such as SMA ( simple moving average ) we will very often us in our stock screener , there is volatility over the year or over the month . The fundamental approach includes reading financial statements that help to form the financial ratios . There is the current/quick ratio , P/E ratio , debt/equity ratio ,etc. - numbers can be derived from the financial statements. 

So, from now on , you are the one who has to come with ideas about your portfolio.I just want to show you the current portfolio of Warren Buffet and to show you that you can see how the famous investors have positioned their assests. You may get some ideas of it - this a good basis for starting research - why would The Investor be interested in that particular ticker. 

I hope you enjoyed the article and you learned something new from it. 

See you all at the next seminar! 

Here are my posts for financial statements: 

http://surreyinvestingsociety.blogspot.co.uk/2014/03/introduction-to-financial-statements.html

http://surreyinvestingsociety.blogspot.co.uk/2014/03/financial-statement-1-income-statement.html

http://surreyinvestingsociety.blogspot.co.uk/2014/03/financial-statement-2-balance-sheets.html

http://surreyinvestingsociety.blogspot.co.uk/2014/03/financial-statement-2-balance-sheet_27.html

Comments on SYRG

Hello everyone who is reading this ,

There has been a lot going on in our competition . You may have noticed that there is one particular company that is constantly changing positions and today hit new heights - this is Synergy Resources Corporation ( ticker SYRG ) . We will look first at the annual chart :

You can see that from the beginning of 2013 till now it has made a return of 300% . It is in the Oil and Gas sector. It a newly established company and for the last fiscal year it has doubled its assets :

You can spot something from the balance sheet , that is the company has increased its property and plant equipment rather than its current assets . Obviously the company is growing and expanding to new plantations but we cannot say that for sure until we read some articles but first , as usual , we have to bear in mind the numbers and financial ratios provided to us on finviz .

It has a P/E ratio of 52,45 and it is predicted to be 14,83 . Do you remember what this means ? We have already covered that during seminars . If this is Price/Earnings ratio and it is going down , then this mean that either the price will fall or the earnings will rise .Later , you will see from the income statement that the company has doubled its gross profit for a small period of time .The next important number given is P/S ratio (price to sales ) . It is given as 12,85. This number is calculated as dividing the market cap. to the company's total sales.  So, either the market cap. is too huge (relative to its sales ) or the sales are too little ( relative to its market cap. ) - basically the two mean the same depending on the perspective that you are looking at.Current and Quick ratio are 1,80 and 1,70 respectively . So, we just looked at the balance sheet and we saw that they are actually increasing their long term assets each quarter. They both have liquid assets and property plant - a formula for long growth. The debt to equity is 0,15 , which is sustainable. The earnings per share for the next year is 102,08% , which is a future prediction and can be tricky .Other than that all numbers are green -sales Q/Q ( every quarter they are increasing their sales a lot ) , EPS Q/Q . Also , the net profit margin is positive. 

There are a lot of articles in seekingaplha on SYRG for such a small company , there is one particular that is making really good predictions .( link : http://seekingalpha.com/article/1972741-2-attractive-8-a-share-energy-plays ) . According to Michael  Filloon ( expert in oil and gas industry and small cap companies) there has been extension that has resulted positively on the numbers for Q4 2013 and even he is pointing that SYRG has a substantial liquidity and there is no perspective to liquidity issues in the mere future. Another article from marketwatch says that the increase in the share price in the recent times is primarily because of their program for 11 new horizontal wells . Also , they point out the good revenue and the cash flow . Another article from finance yahoo( link: http://finance.yahoo.com/news/synergy-resources-reports-fiscal-second-100000429.html ) is talking about the results from the second quarter 10-Q . They are focusing on the revenue growth but I wanted to show the increase of production, revenue and sales for a single year : 

Just look at the percentage change in the three categories and I think the comment on it is useless. This is why the share price is rising - the investors believe in the growth of the company . 

Moreover , this company is approved by most rating agencies . I will show you an image from finviz that shows that SYRG has been upgraded for ages : 

I looked at their financial statements . 

The income statement shows that they have increased their revenue and the cost of production remains somewhat unchanged. The annual report gives insight into when the firm started growing so fast - guess what. It was during the period of 2013-2014 - this is exactly the period when the share price shot itself to a record price. They have plans and they implement them , they have new plants , they have new wells , the production is increased , etc. 

The net income from continuing operations is changing for each quarter but you can trace that this is due to changes in the amount that they are spending on taxation. 

The balance sheet looks great as well :

They have increased both their current and long term assets . I put the annual data an purpose to show you that the changes are really significant for 2013 . But they have also increased their long term debt . For year 2013 they have 83M in debt . But again this is sustainable bearing in mind the current and quick ratio and the debt to equity ratio. Obviously, the managers and the CEOs standing behind it are people , who have a plan. 

The cash flow shows the same picture and  the most significant change is in "Total cash flow from financial activities " , which means that their plan is working .( Just to point out what this number shows is that the company is able to raise capital and after that this capital is used to repay the investors ( this refers to companies that have dividend yield )) .

In conclusion I would say that this company has a lot positive numbers and everything looks sustainable. How long this could be sustained is a matter of management . Imagine you are winning money from activities in  your company - if you do not know how to sustain it , even to make more revenue you may end up bad. 

SYRG has been doing green for the time being on the competition with overall gain of about 20% , which is really impressive for one month. 

Hope this post helped you in some way !

Thank you !

Plamen Filipov

Surrey Investing Society 

Comments on ESV

As I promised I will look at other companies that are in the sector " Oil and Gas drilling and exploration" .

This time I will look at Ensco plc (ticker ESV) . The market cap. is 11B and is relatively a large company for its industry. However, its drilling locations are quite disperse around the world and it exports for a lot of other contries. Its headquarters are in the United Kingdom. According to the company's official site ESV is the second largest offshore drilling company . I will give a world map with the destinations the company has invested in  but clearly ESV is operating almost everywhere there is key drilling place on Earth.:

There are other drilling offshore places as well , which are not specified at the official site of the Ensco plc . Obviously, this company is well-known around the world . 

Let's look at the share price movements for the last several months:

Those support and resistance lines are there to show you how it has been moving overall for a specific period of time. What is interesting here is that I could not say at first whether this company's share is a divident yielder or a growth stock.( and of course it could be both) .Looking at the annual price changes, it has been moving just like Hercules Offshore (HERO) for the time before 2009 recession . But there are differences that could be spotted for the period after 2009 , HERO has a straight horiztal line ,whereas, ESV- upward moving . You can always compare the overall performance of two or more than two companies on finance.yahoo.com by putting the company that you are interested in and after that you click on the graph of the company and after that you click "Compare" and you put the ticker of the other company that you are interested in . I will show you what I come up with , when I compared HERO and ESV:

You should note that some of the movements of the two companies conside , this is not some kind of "miracle" pattern , but there could be for a lot reasons e.g. because of price movements in the oil and gas - this will most certainly affect both company's performance.

We may proceeed with the ratios and the indicators. The P/E ratio is 8,21 with is low , for the whole industry. Also, the PEG ratio is below 1 , which could be a sign of undervalued stock as well . Both P/S and P/B shows undervaluation . But , Price to cash ratio is above 50 , which most probably mean that they do not have a lot of current assets , in other words , they do not have a lot of liquidity , they may have invested all their money .The Current and Quick ratio tell another story (Current ratio 1,5 and Quick ratio 1,2)-They have enough money to e.g. sustain their debt but they do not hold cash. They may have deposited their money and they may hold a lot of inventory ( which could be a sign of future expansion of the drilling sides).
Wrong!!! You cannot make conclusions just by numbers , instead you could make possible scenarios. I looked by their balance sheet in advance, so I know the is truth behind the numbers. The truth is that ESV has a lot of Net Receivables , aboout 70% of the current assets is Net Receivables(this is their customers owe them money , they have used the products but they have not paid yet) .All EPS numbers show growth - perhaps slow and sustainable because the numbers are not that impressive ( except the EPS Q/Q which is 50% , really good number for a company as big as ESV).The Net Profit Margin is not just positive but it is 28,5% , the last two numbers show sings for growth (actually growth , but you will see that when we get to the financial statements) . The Insider trans is positive - the insiders believe in their company- Good!
There is one more important thing to note is the volume . The shares of ESV are not that heavily traded i.e. people are neither selling nor buying a lot ( RELATIVE to the size and industry of the company ) , this could be a sign that if there is growth , it is not going to be fast , but steady and secure .

The overall opinion of rating agencies is negative not just on ESV but on the whole sector:

Analysists are doubtful about the oil price in the next few years . Technically speaking , it is generally believe that the oil price will fall in time of recession and vice verse in time of economic growth the oil price rise up
(Link: http://seekingalpha.com/article/2135933-ensco-plc-is-a-6-percent-yield-enough-to-overcome-the-risks-involved-in-holding-the-shares ) . The author of the article Alexander J.Poulos is making predictions that the price of oil will increase in the next two years. He also says that in general , the drilling offshore companies have increased their divident yield rate and ESV is not making an exclusion . A divident yield of 6% sounds attractive for investors .The last 8-K that ESV have reported this month shows that they have new rigs , in particular in gulf of Mexico,Brazil,Malta,Singapore,Malaysia,South Korea,Denmark, Netherland ,UK,India,Saudi Arabiaand Indonesia ->you can see from the report(the link is at the bottom) that ESV is not just drilling offshore but also they reach depth of 10000 in Angola(the latest project finished in 2013) to 250 in Guilf of Mexico, which means that they are quite diverse in their explorations. I read many other articles that I posted below  but I would say that the analysist's opinion is really divided, mostly because some are afraid that the price of the oil will go down. However, there is one more thing that we have to include before going to financial statements and this is the main competitors:

Column1	ESV	DO	NBR	RIG	Industry
Market Cap:	11.67B	6.73B	7.36B	14.65B	1.48B
Employees:	9000	5500	258500	151000	6000
Qtrly Rev Growth (yoy):	0,16	-0,04	0,02	0	0,63
Revenue (ttm):	4.92B	2.84B	6.15B	9.48B	485.49M
Gross Margin (ttm):	0,51	0,45	0,35	0,4	0,65
EBITDA (ttm):	2.35B	1.19B	1.68B	3.51B	258.91M
Operating Margin (ttm):	0,36	0,28	0,09	0,25	-0,27
Net Income (ttm):	1.41B	548.69M	149.88M	1.39B	N/A
EPS (ttm):	6,07	3,95	0,47	3,87	-0,62
P/E (ttm):	8,24	N/A	N/A	N/A	N/A
PEG (5 yr expected):	0,81	0,82	0,44	0,49	7,35
P/S (ttm):	2,37	2,31	1,16	1,54	3,06

I made this table ( source: finance.yahoo.com ) to show you that every single factor used for the comparison of ESV  is better than the other direct competitors. (excluding the revenue where RIG has more revenue relative to its market cap.(Look at the graph of NBR : it made a return of 39% for the last 4 months) .

The first financial statement that we will look at is the income statement .There is not many things that you can conclude because there are not many changes on it .

I can always put those financial statements here but the point is that you should be able to read it and understand it . In our case with ESV there is not much that you can see that has change quarterly (even annually) .There is only one one thing to note from the balance sheet is that ESV is not holding a lot of liquidity, the have invested 14 billion dollars in Plant and Equipment, and that they have nearly 5 billion in long term debt ( which could be a problem , depeding on how they handle it )

If there is not enough information that you can abstract from financial statements , you should look up the
10-K reports that can be found on the official websites of the company that you are researching. The report of ESV is 200 pages , which provides you with a lot information. If you want to make good investment , you need to read to whole report and making points about it. One example with what I found in the report:

They past information about changes in water platforms , but they also provide you with projected information about the future . The funny thing is that you can become a professional in some areas just by reading report . For example , if you research several companies in Oil and Gas drilling and exploration , at some point will know a lot about it. You may have to learn the actual method of extraction , also you may have to study geography to familiarize yourself of the main oil drilling place , etc. This is experiece that you can use e.g. for applying for a job.

Going back to 10-K , the fillings show that EVS revenue has changed a lot between 2011 and 2012 but we cannot say the same for the last year .Obviosly , they are looking to attract investors because they have increased their divident yield a lot . They have new plants . They have new employees making it to 9000 . The report looks really positive on all future prospects.

In conclusion I would say that this company gives you stability and real divident with perspective to future growth . It would be nice to see how it gets to top positions in our competition.
Next time I one of the other three companies in the sector .

Thank you for reading !

Links:
1.Article: http://seekingalpha.com/article/2135933-ensco-plc-is-a-6-percent-yield-enough-to-overcome-the-risks-involved-in-holding-the-shares
2. Investor's information: http://www.enscoplc.com/Global-Operations/default.aspx
3. Article: http://seekingalpha.com/article/2082103-is-ensco-a-good-stock-to-buy
4. Article: http://seekingalpha.com/article/2076753-ensco-a-great-buying-opportunity-in-a-high-yielding-stock
5.Latest 8-K report from April 2014 : http://www.enscoplc.com/Investors/SEC-Filings/default.aspx
6.Latest 10-K report from February 2014 : http://ensco.q4cdn.com/f97564d5-7dfc-4ef6-a33f-39266b5bece8.pdf?noexit=true


Chief editor: Plamen Filipov
Surrey Investing Society 2014