Some Pointers

 


The more you know the better, but it isn’t imperative that you call the company.


STOCKS IN GENERAL

·      The P/E ratio. Is it high or low for this particular company and for similar companies in the same industry?

·      The percentage of institution ownership. The lower the better.



·      Whether insiders are buying and whether the company buy back its own share. Both are positive sign.

·      The record of earnings growth to date and whether the earnings are sporadic or consistent. (The only category where earnings may not be important is in the asset play.)

·      Whether the company has a strong balance sheet or a weak balance sheet (debt-to-equity ratio) and how it’s rated for financial strength.

·      The cash position. With $16 in cash, I know Ford is unlikely to drop below $16 a share. That’s the floor on the stock.

 

SLOW GROWERS

·      Since you buy these for the dividends you want to check to see if dividends have always been paid, and whether they are routinely raised.

·      When possible, find out what percentage of the earnings are being paid out as dividends. If it’s a low percentage, then the company has a cushion in hard times. It can earn less money and still retain the dividend. If it’s a high percentage, then the dividend is riskier.

 

STALWARTS

·      These are big companies that aren’t likely to go out of business. The key issue is price, and the P/E ratio will tell you whether you are paying too much.

·      Check for possible diworseification that may reduce earnings in the future.

·      Check the company’s long term growth rate, and whether it has kept up the same momentum in recent years.

·      If you plan to hols the stock forever, see how the company has fared during previous recession and market drops.

 

CYCLICALS

·      Keep a close watch on inventories, and the supply-demand relationship. Watch for new entrants into the market, which is usually a dangerous development.

·      Anticipate a shrinking P/E multiple over time as business recovers and investors look ahead to end of the cycle, when peak earnings are achieved.

·      If you know cyclical, you have an advantage in figuring out the cycles.

 

FAST GROWERS

·      Investigate whether the product that’s supposed to enrich the company is a major part of the company’s business. It was with L’eggs, but not with Lexan.

·      What the growth rate in earnings has been in recent years.( My favourites are the ones in the 20-25 percent range. I’m wary of companies that seem to be growing faster than 25 percent. Those 50 percent usually are found in hot industries, and you know what that means.)

·      That the company has duplicated its success in more than one city or town, to prove that expansion will work.

·      That the company still has room to grow. When I first visited Pic ‘n’ Save, they were established in southern California and were just beginning to talk about expanding into northern California. There were forty nine other states to go. Sears, on the other hand, is everywhere.

·      Whether the stock is selling at a P/E ratio at or near the growth rate.

·      That few institutions own the stock and only a handful of analysts have ever heard of it. With fast growers on the rise this is a big plus.

 


TURNAROUNDS

·      Most important, can the company survive a raid by its creditors? How much cash does the company have? How much debt? What is the structure of debt?

·      If it’s bankrupt already, then what’s left for the shareholders?



·      How is the company supposed to be turning around? Has it rid itself of unprofitable divisions? This can make a big difference in earning.

·      Is business coming back

·      Are cost being cut? If so, what will the effect be?

 



ASSET PLAYS

·      What is the value of the assets? Are there any hidden assets?

·      How much debt is there to detract from these assets? (Creditors are first in line.)

·      Is the company taking on new debt, making the assets less valuable?

·      Is there a raider in the wings to help shareholders reap the benefits of the assets?

 

 

 

Next blog is coming about Designing A Portfolio.

Thank you again for your Patience.

Keep supporting as always.

 

Congratulation you take one more step towards your financial freedom.

This summary from Book-“ONE UP ON WALL STREET”

 

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