Monday, May 21, 2012

Value Stock Investing 101

Well known businessmen like Warren Buffet can easily spot stocks with share prices that are lower than their true value. An investment on stocks within these category is termed as value stock investment. Market observers are alerted to potential value stocks if there are noticeable price drops over a 52 week period. These are usually companies that are experiencing a minor downtrend with reasons ranging from the economy to management problems. From there you can narrow down your list to companies with the potential to bounce back and recover within a mid term to long term period.

Identifying values stocks and discerning its full value potential can easily spell your success in value stock investing. Warren Buffet made millions by spotting undervalued stocks with great business potential. Following Warren Buffet?s investment preference entails the consideration of several points. Your primary point is to find out how to separate the good stock from the bad stock.

Do a bit of research on the track record of the company for the past five years covering downtrends and Return on Equity. Be alert for cues that shows a stock is facing an impending doom like share prices that are going down for some time. Stocks with a Return on Equity average of at least 10% may be worth considering if they have a history of profitability. Go over the price to earnings and price to book ratio, market cap, debt to equity current ratio and other figures that reflect the financial state of the company. Your best choices are in companies whose market caps are within the 500 million range. Keep an eye out for stocks with a price to book ratio of two or below. Look into the company?s debt to equity current ratio if you want to get an idea on their debt standing, a CR of less than 1 is bad news for the investors.

Stock market investors know the value of having a diverse portfolio. The same rule applies to value stock investing. A value stock investor can do well with an expansive portfolio that strengthens his investment.

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