Finding Bargains Among Stocks With Falling Stock Prices

  Finding Bargains Among Stocks With Falling Stock Prices Underperforming stocks may seem unappealing, but the price weakness can turn them into bargains with upside potential. The Essence of the Benjamin Graham Approach A cut-to-the-chase synopsis of Graham’s rules, which were based on buying stocks trading with a margin of safety.   52-Week Highs Perform…

 

The Major Approaches to the Question of Valuation

Screening a universe of common stocks down to a manageable number for further analysis leads the investor to the question of valuation: Given the market price of the common stock, is the stock correctly valued? If, in your opinion, the answer is no and you believe the stock is either overvalued or undervalued, then a…

 

Factors Driving a Company’s Dividend Policy

This week’s AAII Weekly Digest highlights these “must-read” AAII articles:   The Factors Driving Dividend Policy An analysis of global dividend policies attributed the rationale for companies to pay and raise their dividends to many factors, including communicating information, so-called “agency costs,” tax policy and a company’s maturation. A Dividend Approach to Judging the Value…

 

Analyzing Value: The Internal Growth Rate

Earnings and dividend growth rate assumptions are a primary factor in almost all fundamental models of common stock valuation. The greater the anticipated future growth in firm earnings, the greater the stock valuation will be, assuming risk remains unchanged. But estimating earnings growth potential is difficult. Many subjective factors are considered, including the firm’s management,…

 

A Checklist Can Make You a Better Investor

In discussing how his company responded to last week’s engine failure on flight 1380, Southwest Airlines CEO Gary Kelly was quoted by The Wall Street Journal as saying, “Everybody has a checklist.” Checklists have been shown to work across a variety of fields, including aviation, health care, construction and, yes, investing. Value investors Guy Spier…

 

Valuing Growth Stocks

If you pay too much for a stock, your return on investment won’t be satisfactory. In the AAII world of Shadow Stocks—companies with some history of growth, little or no dividend yield and a small amount of the stock outstanding owned by institutions—you hope to profit mainly through appreciation in the price. You expect that…

 

A Dividend Approach to Judging the Value of Stocks

This week’s AAII Weekly Digest highlights these “must-read” AAII articles:   The Effect of Dividend Changes on Expected Cash Flows Dividend announcements and changes are perceived as signaling information about a company’s financial prospects. However, new research points to a link between dividend announcements and future changes in cash flow volatility. A Dividend Approach to…

 

When to Sell and Nail Down Your Profits

This week’s AAII Weekly Digest highlights these “must-read” AAII articles:   Revising the MAGNET Screens The MAGNET system targets the fastest-growing companies that are still trading at a discount to their intrinsic value. Companies in this category are likely to enjoy dynamic earnings growth. We call these companies “MAGNETs.” They tend to stimulate investor response…

 

Retail Investors Think U.S. Stocks Are Overpriced

Pull up a financial website these days and you probably won’t have to look far for an article discussing the current valuation of the U.S. stock market. As I am writing this blog post, a non-financial website that I frequent has no less than four links to articles about the current “bubble” in stocks and…

 

Value Works, But You May Want to Add Additional Criteria

In its purest form, value investing involves solely buying cheap companies. Just cheap companies. Studies of valuation either use high minus low (buying the cheapest stocks and shorting the most expensive stocks) or separate stocks into deciles (10 evenly split groups) or quintiles (five evenly split groups) based on their relative valuation ratios. No consideration…