One of the best stock-picking methods is called value investing. The concept is very simple, search for companies with trading prices that are below their intrinsic value.
Looks for stocks with good earning, consistent dividend payouts and positive cash flow that are undervalued thus have the potential to increase when a particular industry or the economy is growing again.
Buy stocks as if you were buying the business and assuming ownership. Research the company diligently, as it is your hard earned money that you will be putting at risk.
Value investing means investing in quality companies for the long term. Not buying and selling for short term gains. Day to day market fluctuations and volatility are normal events in the life of investorsand therefore should not have too much of an effect on the value of the business in the long run.
Value stocks can be found on most of the world’s trading exchanges. They are included in industries such finance, energy, and technology. These companies are often found in industries that have fallen lately. In cyclical industry, opportunities can be found during periods of devaluation. Companies that have fallen to a new 12 month low may qualify as value investment opportunities as long as the stock trading price remains under the intrinsic value of its share price. Look for these qualities in potential value stocks for your portfolio.
Companies with a price earnings ratio in the lowest 10 percent of stocks. The stock price should be less that the book value. There is less debt on the company’s balance sheet than stock equity value. Assets must be at least two times current liabilities. The company should have consistently raised its dividend in the last 10 years or at least be two-thirds the rate that class AAA quality long term bonds are paying and earnings growth should be averaging 10 percent over the last 10 years.
Value investing is more than investing in low P/E stocks. Keen investors should compare P/Es of companies within the same industry.
A metric for finding a company’s intrinsic value is the PEG ratio. This can be found bycalculating stock’s P/E ratio divided by its projected year-over-year earnings growth rate. A company with a PEG ratio less than one, it is considered to be undervalued.
Another method to find value stocks is the net-net method. This method states that if a company is trading at two-thirds the level of its current assets base that the buyer is getting all the permanent assets of the company, and the company’s intangible assets at a great discount. Companies trading this low are few but can be found by the astute investor.
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The Best of Value Investing – Part 1
The World’s Best Investment Advices from valueinvestor- Warren Buffett, Peter Lynch, John Templeton, Seth Klarman, Charlie Munger, Walter Schloss, Bill Ackman, Bruce Greenwald, Martin Whitman, Whitney Tilson, Irving Kahn, John Bogle, Hersh Cohen, David Winters, Chris Davis, Roger Lowenstein, Irwin Michael, Mohnish Pabrai, Mark Holowesko, David Nadel, Tom Russo.
The Best of Value Investing – Part 2
The Best of Value Investing – Part 3
The Best of Value Investing – Part 4
The Best of Value Investing – Part 5