Jared Schneider is the owner and current writer for InvestorPitStop.com.
His writings have been published on SeekingAlpha.com, and is a featured Expert Author for EzineArticles.com. He is also a luxury real estate professional for Century 21 Elite Properties in Orlando, FL.
After reading Value Investing Basics for Beginners, you now know the basics of what you need to know to invest in stocks that are value picks. The next part of this process gets into more of the details of value investing.
Historical research shows that stocks with low P/Es have performed better over time than high P/E stocks. The P/E ratio is the multiple of earnings per share (EPS) that the stock price currently is (Ex: Stock A has EPS of $3, and P/E of 10x; the stock price= $30). However, to find really solid stocks there are lot more aspects to look at than simple P/Es, because the P/E ratio doesn't paint the whole picture of the company.
After you have read Part I - Value Investing Basics for Beginners, you should know what type of companies to look for. You now need to follow these guidelines for making sound value investments. You can input these requirements into stock screeners to find undervalued stocks. Most of these ratios are readily available in Yahoo! Finance information for companies.
Value Investing Guidelines Screen:
1. PEG Ratio less than 1.
2. Net profit margin more than 15%.
3. Return on Equity more than 15%.
4. Return on Assets more than 10%.
5. Earnings growth of 10% or more over the past 5 years.
6. Growing Cash Flow from Operating Activities.
7. Low Debt relative to Gross Profit- Total Debt should not exceed 3 or 4 times Gross Profit.
Although these are not hard, fast rules, these are guidelines that will sift out great companies from the not-so-great companies. If the stock has a low PE with all of these requirements, it is an attractive stock.
These requirements make the PEG Ratio important. The PEG ratio equals the PE ratio divided by the expected EPS growth rate for the next 5 years (Ex: a stock has PE of 9 and a five year EPS growth rate of 15%; so 9/15= .6 PEG ratio). Many value investors buy stocks from just the PEG ratio. Although it adds an important element of profitable growth to the PE number, you still have to look at factors other than the PEG.
Now you understand the fundamentals of how to Value Invest. This list and Part I allow you to find sound value investments. There are more details that some investors use, which I will post later about. Happy Investing!
- Related Articles
- Related Q&A
Loi de Finances 2008 : Quelles sont les modifications ?
Par: Jean-marie Noguier | 17/01/2008 | EconomieLe nouveau projet de loi de finances pour l’année 2008 comporte des nouveautés. Trois domaines sont concernés : les revenus de capitaux mobiliers, de nouvelles dispositions donnant droit à une réduction ou une déduction d’impôt et l’impôt de solidarité sur la fortune ( ISF ).
Attention Aux entreprises de defiscalisation De Robien de type Prestige Finance and co
Par: Maxime | 05/06/2008 | ImmobilierIl faut être très prudent face aux sollicitations (voir harcèlement) contact téléphonique, mailing commercial et matraquage de publicité massive et accrocheuse de certaines entreprises de pseudo conseille en finance tel que Prestige Finance (qui a son propre "call center" en passant) in fine qui vous propose gratuitement (furtage du pigeon ?) un "Compte Epargne Impôt" défiscalisation en achetant un "support", en finalité vous risquez la banqueroute.
Finance - La Spéculation Sur La Misère Du Monde
Par: ytty54 | 24/06/2008 | InvestissementSinistre histoire belge que celle de la banque KBC qui a trouvé un nouveau filon : spéculer sur les denrées alimentaires. Qui vont monter forcément. Qui vont donc rapporter. CQFD.
La Gueule De Bois Du Bling Bling
Par: Marjorie Paul | 21/12/2008 | FinanceJe vis dans une ville où “Money Money Money” est le diesel de la machine humaine… Qui plus est, je suis liée par les liens du mariage au monde économique depuis 16 ans et j’habite dans un quartier affectionné par les banquiers et économistes de tous bords de par la fonctionnalité du lieu. J’ai fréquenté quelques temps la grisaille de la City, assisté à des soirées et évènements organisés par les banques et bâillé en silence à la droite d’un ou deux hommes de la finance d’un autre siècle!
Deuxième Industrie Hypothécaire En Australie
Par: Nandini | 04/02/2009 | FinanceUne hypothèque de deuxième rang est le plus avantageux lorsque l'emprunteur a besoin de financement pour une fin spécifique pour une courte période de temps et ils peuvent voir comment la deuxième financement hypothécaire peut être remboursé à court terme. C'est une bonne source de financement des investissements opportunistes, ou pour répondre à une urgence imprévue frais.
Pensées - Attali ou le triomphe de l'égo durable
Par: ytty54 | 05/01/2008 | PolitiqueJacques Attali est partout, parle beaucoup, sur tout. A croire qu'il s'identifie à certains hommes politiques à succès, lui qui de son propre aveu "vit une seconde jeunesse". Entre nième ouvrage paru, présidence d'une commission qui, suprême honneur, porte son nom, développement de son concept humble de Planet finance, il n'arrête pas.
Se Lancer En Affaire, Avec Une Franchise
Par: Guy | 21/09/2008 | FranchiseC’est bien connu : plusieurs personnes rêvent de se lancer en affaire. Je connais personnellement bien des gens qui en rêvent depuis 5, 10, 15, voire même 20 ans. Vous savez quoi ? Tout ça ne restera qu’un rêve tant et aussi longtemps qu’ils n’auront pas d’objectifs précis et qu’ils ne passeront pas à l’action. Toutefois, ceux qui sont vraiment décidés à passer à l’action doivent savoir qu’il existe trois façons de devenir propriétaire d’une entreprise. Chacune de ces méthodes comporte des avantages et des inconvénients.
Le Congo et l’Absence de Politique nationale de Technologie moderne
Par: Delphin Kyubwa | 18/07/2009 | Information TechnologyCe document explore les réalités et défis technologiques en République Démocratique du Congo (RDC) dans le domaine de l’information et de communication. L’auteur, praticien-chercheur et professionnel du domaine, aborde les différents aspects sur la nécessité et le rôle de politiques nationales en matière des nouvelles technologies pour le développement, la bonne gouvernance et la gestion efficace/efficiente de l’action gouvernementale au Congo.
The superannuation fund is a popular choice in Australia
By: Mel C | 05/01/2010When looking to plan for retirement, you need to look into a superannuation fund. It's the most popular choice for people in Australia to begin their retirement savings. There are many options to choose between, but can ultimately prove very beneficial.
Cash Till Payday Loans- Quick Financial Help Without Any Hassle
By: jaren lese | 05/01/2010Cash till payday loans are short term financial schemes which are designed to help you in time of need. These are easily available on the internet. The loan is deposited in your account without any hassle.
Stock Market Chart Tips: Understanding Trend Trading
By: David Wittlinger | 05/01/2010You can go online today and gain access to many different stock market charts, but would you actually know how to read one correctly? If you want to get into day trading or are interested in trend trading, you definitely need to learn how to read a stock market chart since the information it will give you is so essential to becoming a successful trader. If you are already a successful equity trader you may already know how to read these charts, but for everyone else let's take a look a...
Some Viable Tips To Saving Money
By: Peter Gitundu | 05/01/2010It is not uncommon to find yourself in a situation where you want to save part of the money you make on a monthly basis, but your needs always seem to exceed the money you have and you find yourself not making any savings.
Saving Money- The Options That You Will Need To Deal With
By: Peter Gitundu | 05/01/2010It is easier to spend money than it is to make the same money. Saving money is considered to be a difficult task for many people because of the daily expenditures that we find ourselves surrounded with, considering the rising cost of living as a result of economic fluctuations.
How To Save Money With Little Income
By: Peter Gitundu | 05/01/2010Saving money is a pain in the neck for many people. It is easier to say that one is going to save money than to actually save it. The excuse that many people give for this is that emergencies always come up at the point at which one intends to tuck away some money, and therefore they end up not being able to save the money they intended to.
Intelligent Investments
By: Michael Ramsay | 05/01/2010With companies and individuals recording record losses and the likes of Warren Buffett’s Berkshire Hathaway reporting poor investment performance, the recovery from the economic downturn should give us pause for thought and a moment to reflect on the lessons learned.
Defining the Best Penny Stocks to Invest In
By: Duane Atkinson | 05/01/2010Penny stocks represent an area of the market that some folks will not touch . Except for others they may give the chance of getting a high return on their investment. Of course they may also be fraught with danger, and because of this you need to consider which penny stocks will be the best ones to take a position in. Penny stocks get their name from the fact that they are low priced. This means that even the tiniest financier can buy plenty of stocks in a company which has p...
A Little-known Small Cap Stock Ready for Huge Growth
By: Jared Schneider | 03/02/2009 | InvestingHave you always wanted to find that diamond-in-the-rough stock that has the potential of gaining returns of 100%, 200%, or even 1000%? If you look for stocks like this one, you might find it. This stock has enormous potential. Read More...
This Stock Will Make Your Portfolio Healthy
By: Jared Schneider | 02/01/2009 | InvestingIs your portfolio suffering in this harsh bear market? There is a company that is defying the market's gravitational pull. Get your portfolio healthy by adding this stock to it...
3 Rocking Stocks to Buy Before Christmas
By: Jared Schneider | 10/12/2008 | InvestingThese stocks have been largely discounted. Buy these stocks and make money for the holidays. Be ready for the market rebound.
Value Investing Basics Part II
By: Jared Schneider | 10/12/2008 | InvestingLearn the guidelines for value investing. What rules do Warren Buffett and other famous value investors use to find undervalued stocks First you have to...
Value Investing Basics for Beginners
By: Jared Schneider | 07/12/2008 | InvestingLearn the investing strategy that has made Warren Buffett the world's richest man. Find out the fundamentals of value investing and what kind of companies to look for.