How to Invest in Value Stocks
Value stocks are companies that appear underappreciated by the market. A value investor buys the stock with the hope that the market will recognize the underlying value of the company, causing the stock price to rise. This contrasts with a growth strategy that buys stocks for their anticipated earnings growth. Here's how to reap the benefits from value stocks.
- Difficulty:
- Moderately Easy
Instructions
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Look around the market for potential buys. Begin your search by looking for stable companies with low price to earnings multiples. Another sign of a value investment is a high dividend rate.
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Research the company in depth. Remember that you are buying a share in the business of the company. If the company itself is strong, fluctuations or weakness in the stock can be ignored. Examine the company's cash flow and earnings.
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Contrast it with other companies in the same industry. Compare the price to earnings ratio, return on equity, gross and net profit margins and the growth rate of earnings and revenues.
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Buy the stock. Discount brokerages offer cheap commissions for do-it-yourself investors.
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Hold the stock until the market recognizes the companies underlying value.
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Sell the stock unless you can find a new justification for owning it.
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Tips & Warnings
Take a long term view when making an investment.
Don't forget to diversify. Buying only value stocks is a risky strategy.
Don't confuse a decreased stock price with a good value.
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Comments
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sanserve
Nov 18, 2008
Value Stock Investing - The November Syndrome On Drugs Every fall, especially in opportunity rich markets like this, I encourage investors to think about some year-end strategies that make the final calendar quarter a special time in all markets. Several forces are at work, all of which have links to conventional Wall Street wisdom; none of which promote good long-term investment decision-making. This year, we have the added excitement of anticipating a new, perhaps economically too liberal, administration taking over with an already implanted, and demonstatably inept, congress. The markets are in a truly unprecedented state of "uncertainty overload". What's an investor to do--- or not to do? Typically, the November syndrome has features that impact in both directions. It causes weak prices to fall even further and strong prices to climb higher. This year, the strong category re -
sanserve
Nov 18, 2008
Value Stock Investing - The November Syndrome On Drugs Every fall, especially in opportunity rich markets like this, I encourage investors to think about some year-end strategies that make the final calendar quarter a special time in all markets. Several forces are at work, all of which have links to conventional Wall Street wisdom; none of which promote good long-term investment decision-making. This year, we have the added excitement of anticipating a new, perhaps economically too liberal, administration taking over with an already implanted, and demonstatably inept, congress. The markets are in a truly unprecedented state of "uncertainty overload". What's an investor to do--- or not to do? Typically, the November syndrome has features that impact in both directions. It causes weak prices to fall even further and strong prices to climb higher. This year, the strong category re
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sanserve
Jul 07, 2008
When All Stocks Are Value Stocks - Think QDI Value stocks are those that tend to trade at lower prices relative to their fundamental characteristics than their more speculative cousins, the growth stocks; they have higher than usual dividend yields and lower P/E and P/B ratios. So when all stock prices are down significantly, have they all become value stocks? Or, based on the panicky fear that tends to overwhelm media and financial experts alike, haven't they all taken on the speculative characteristics of growth stocks? Well, to a certain extent they have, because the lower value stock prices go, the more likely it is that they will eventually experience the 15% ROE that typifies the classic growth stock. Interestingly, by definition, growth stocks are expected to be associated with profitable companies, a fact that speculators often lose site of. There are three features that s
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sanserve
Jul 07, 2008
When All Stocks Are Value Stocks - Think QDI Value stocks are those that tend to trade at lower prices relative to their fundamental characteristics than their more speculative cousins, the growth stocks; they have higher than usual dividend yields and lower P/E and P/B ratios. So when all stock prices are down significantly, have they all become value stocks? Or, based on the panicky fear that tends to overwhelm media and financial experts alike, haven't they all taken on the speculative characteristics of growth stocks? Well, to a certain extent they have, because the lower value stock prices go, the more likely it is that they will eventually experience the 15% ROE that typifies the classic growth stock. Interestingly, by definition, growth stocks are expected to be associated with profitable companies, a fact that speculators often lose site of. There are three features that s
