Glossary of Terms

GLOSSARY OF TERMS

Analysts’ Ratings:

Buy rating usually means that the analyst expects the stock to outperform the general market, so it is a good time to buy. Hold rating normally occurs after a company has missed a revenue and earnings expectation but the near-term prospects are still okay, so if you own the stock, you should hold it; thus, the hold rating. Sell rating is exactly that: Sell it, as the near-term prospects look horrible and expectations for revenues and earnings will probably be lowered again and again.

Back-end Weighted:

Companies whose revenues typically come more in the back end of a quarter. Example: Many software companies achieve up to 50% of their quarterly revenues the last two weeks of the quarter.

Basis Point:

One basis point is equal to 1/100 of a percent. Example: 100 basis points equals 1 percent.

Dead Money:

Typically, when a company has badly missed revenue and earnings expectations, and the stock has come way down in value and should stay down for three to 12 months, then the money is called dead money.

Initial Price Target:

The target price for a particular stock. Typically, the analyst or broker or individual investor should map out what the goal is of the investment by giving it a specific price target.

Inside Information:

Information about a company that is not available to the general public. It is not illegal to have inside information, but it is illegal if the information is acted upon.

Insider Insights:

Insights that are perfectly legal. They are general observations about a particular company or industry, such as identifying trends before they become mainstream, watching for pricing patterns in a product and if they are they rising or declining, etc.

IPO and IPO Roadshow:

IPO means initial public offering, when a private company will be offering its stock to the public for the first time. The roadshow is typically three- to four-week coast-to-coast meetings with professional portfolio managers.

Market Capitalization (market cap):

The total value of a publicly traded company. The formula is all stock shares outstanding times the market price equals the market cap. Most professional portfolio managers describe micro-cap as a company with a market cap under $500 million, small-cap as under $2 billion, mid-cap as $2 billion to $10 billion, and large-cap as above $10 billion.

Net Margin:

The after-tax profits of a company.

Operating Margin:

Probably the most important number that analysts and portfolio managers look for on a company’s income statement. Operating margin is the money (profit) left over after ALL expenses, but before income taxes.

PE: price-earnings ratio. The current stock price divided by the earnings per share. Example: Stock is at $20, and earnings per share are $2, so $20 divided by $2 equals a PE of 10.

PEG: Price-earnings-to-growth ratio. The PE number, as in above example, 10, divided by the company’s earnings growth rate, say 10%, so 10 PE and 10% growth rate equals a PEG of 1.

Professional Portfolio Managers: (also known as professional money managers, professional fund managers, or institutional money managers): Usually an individual or a small team of professionals whose sole job is to manage a portfolio. Typically, portfolios will have stated objectives, i.e., aggressive growth, general growth, and growth with income.

Ratable: Companies whose revenues come in fairly evenly during the 12 weeks of a quarter. Example: restaurants, retailers, and medical device companies.

Retail Broker: A trained broker whose clientele is strictly individual investors and/or small businesses.

SG&A: Expenses associated in running a business in the selling, general, and administrative areas.

The “Street”:

The investment community normally made up of brokerage firms and investors, both individual and professional money managers.

Technology Tape:

Technology stocks generally trade up or down as a group, so it is referred to as the technology tape, or the tech tape.

Ticker Symbol:

Every publicly traded company is assigned a letter symbol to represent that company’s name. These ticker symbols are assigned by either the New York Stock Exchange, The NASDAQ, or the American Stock Exchange. Examples: Wal-Mart is WMT, General Electric is GE, Citigroup is C, and Microsoft is MSFT.