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Stock Investing Strategies – Value Stock Investing

admin — Sun, 23 May 2010 05:45:48 +0000

Value stock investing is a method that involves purchasing stocks that are going at prices below their worth. Value investors search out stocks the market has under priced. They work on the theory that the stock mark over-corrects in relation to fluctuating economic indicators, thus causing stock price changes that do not reflect companies’ long term value. Thus value investors seek to to buy stocks when their price is arbitrarily low.

Value investing is a very well known strategy. The theory of value investing was laid out by two Columbia finance professors, Graham and Dodd, in the 1930s. The theory is simple: Buy stocks being sold beneath their real value.

Good earnings, dividends, and cash flow are earmarks of a good company that can belie a seemingly low trading price. The value investor hunts for companies that are under-rated by the market currently, and looks to profit when market investors catch on to their mistake and share prices rises.

The potential flaw in value investment strategy is that their is truly no objective intrinsic value to stocks. Individual investors working with the same info constantly take the same information and reckon different values for the same stock. This is why the concept known as “margin of safety” is important in value investing. This indicates buying cheaply enough that a profit will still be turned if one overestimates the ultimate rise in share prices when the market fluctuates. In the extreme case, attempting to practice value investment on such junk assets would amount to throwing money into a hole.

Further, there is no exact, objective definition for “value investing”. A certain percentage of value investors look only at a companies present earnings and assets, ignoring future growth, while other value investors craft a more long-term revolving around potential future growth and profit expansion for the company. The value investor must distinguish between a temporarily undervalued bargain company and one that will simply continue falling in value for the foreseeable future. If company X has been trading for the past quarter at $35.00 a share but drops to $15.00 a share, this is not necessarily a value company. It may simply indicate that the company has problems the market is responding to, indeed, the company in question may be going belly-up.

Here is a rundown of the rules of thumb value investors use for choosing stocks.

1. Price per share must be equal to or less than 66.66% of intrinsic worth.
2. Pay attention to companies featuring P/E rations at the cheapest 10% of traded equity securities.
3. The PEG should be below one.
4. The stock price must be less than or equal to book value.
5. Equity should be greater than or equal to debt.
6. Current assets must be at least double liabilities
7. Dividend yield must be at least 66.66% of the AAA bond yield over the long term.
8. Growth in earnings must be at minimum 7% per year, compounded over the previous decade.

Value investing lacks the glamor of the higher risk/reward styles. It relies not on hot tips or intuition, but a simple, cool headed process of screening stocks by the numbers. However, there is something to be said for a method that outperforms the S&P to the tune of thirteen percent over a 40 years.

Stock investing strategies – Growth Stock Investing

admin — Thu, 20 May 2010 18:51:08 +0000

Generally speaking, a strategy employed by an investor selecting stocks with above average growth potential is considered growth stock investing. These targeted stocks are corporate assets whose quarterly earnings are anticipated to grow relatively quickly in comparison to the overall market within its particular industry.

Often termed as capital growth strategy by growth investors, maximizing capital gains is the overall goal. Though many say growth investing is diametrically opposed to value investing, it\’s more appropriate to accept the two strategies in light of a Warren Buffet quote, where he talked about growth as well as value investing being tightly joined. Similarly, another investing mogul by the name of Peter Lynch is credited with first implementing an intermediate approach between the two, commonly spoken of as the GARP strategy, or growth at reasonable prices.

By the end of the 1990\’s, during the big tech stock boom, those employing growth investing tactics yielded extraordinary returns for investors. It should be noted, however, that growth stock investing has some substantial risks. This method is not for the faint of heart, and it\’s potential gains and losses should be well understood prior to making any such leap.

Perhaps the easiest way to illustrate exactly what growth investing is is to show what it isn’t as compared to it\’s counterpart, value investing. The value investor takes into account current expectations. Those stocks trading below their perceived value are considered value purchases, on the speculation they will return to their true value in the short term. In contrast, growth investors buy shares of companies that are expected to balloon from their current value over a considerably greater length of time, with little concern of the stock\’s current pricing. In this type of trading, buying at levels above the perceived worth of the stock can and does occur. The strategy is reliant on the potential for overall growth of that company in the future.

Those stock\’s that are considered growth stocks are shares of companies speculated to grow relatively quicker than other similar interests. It stands to reason that younger companies are of a higher interest to growth investors. This takes into consideration the theory that earnings and revenue growth will translate directly to an increased share price for the stock. Those industries expected to increase rapidly in their asset value are good candidates, most especially ones leading in new technologies. Capital gains are the means to realizing profits here, not dividends, as more often than not these types of ventures are prone to earnings reinvestment leaving very little for dividend pay-outs.

A major player in teaching and utilizing growth stock investing strategies is The National Assn of Investors Corp., or NAIC. They have a five point checklist to assess growth stock candidacy. All five requirements should be met to consider the stock a prime option. These are the five points in paraphrase:

*Does the stock historically show strong earnings?
*Is strong growth expected going forward?
*Is the management of the company effective in controlling revenues and costs?
*Does the management show signs of continual improvement and innovation?
*Does it seem likely that the price of stock can double within the next five years?

Following these guidelines, and an affirmative answer to all of them, will provide a stock that is likely a good candidate for growth stock investing.

Stock Investing Research – How to use a simple stock investing checklist?

admin — Tue, 18 May 2010 02:01:28 +0000

One of the most common terms you hear analysts discussing is the raising and lowering of stock ratings. The rating of a stock directly impacts how well it does on the market, so understanding this ebb and flow can net you quite a bit of significant gain. Doing your own stock investing research can yield quite a bit of knowledge that will let you analyze stock trading trends just as well as any analyst. In order to understand how analysts determine this ebb and flow, I’ll be explaining the process in a simple manner so you can learn how the entire process works. If you are interested in knowing more, there are tons of books that have been written entirely devoted to analyzing stocks. For beginners, it is best not to get too technical.

When picking the right stocks in which to invest, you should conduct a bit of research into the history of the stocks you are considering. Understanding how the company works and the services they offer, as well as their stated business goals will better help you understand the direction the company is likely to take in the future. With your inner understanding of how the company works and their business plans, you will be able to better understand and apply stock valuation techniques to reap the benefits of early stock purchasing.

Since researching stocks is the key, you need to be sure you are researching properly. Understanding the company inside and out is a good start, since it will help you decide whether or not you wish to purchase stock in the company. One of the best ways many people use to form opinions on a company and the stock is by following a stock investing checklist. Understanding information given in press releases, quarterly reports, and industry reports will help you determine the quality of a stock. Another great way to gain an understanding of industry analysis is to follow this simple checklist:

* Find a broker with minimal fees, such as maintenance an inactivity fees.
* Be sure your leverage is kept at a minimum. You don’t want to feed your profits to your broker or bank.
* Insure your account. You can’t afford to go with a broker who will go under and take your money with it.
* See if your broker has a free trial before you invest any large amounts of money with them.
* Understand tax laws. Taxes are the biggest bite when it comes to investing, so understanding what you are allowed to deduct and what kind of records you need to keep is essential.
* Always account for inflation. By investing in stocks that provide equal return when considering inflation, you are covering yourself in the future.
* Always keep in mind there are really no risk free investments.

Following this stock analysis checklist will keep you ahead of your game in many different situations. Since no company and stock investing option is the same, you will need to apply your general knowledge to the situation to determine whether the risk will be worth the reward. Always remember that federal savings bonds are about as close as you can get to a risk-free investment, so keep this in mind when you begin studying the market.

Small Cap Stock Investing – Why is it good to invest in small cap stocks also?

admin — Sat, 15 May 2010 08:57:34 +0000

Many people had watched their retirement funds hemorrhage out over the past several years. The volatile stock market paired with uncertain economic times have left many scrambling for better investment options. Small cap stock investing could be the solution they have been looking for.
Even though the stock market is leveling out, it is far from smooth sailing. Leaving investment decisions in the hands of financial gurus and stock brokers may still be a smart idea for many folks; however, those with meager savings to invest may not be able to sacrifice the handler fees for these services. This leaves financial risk and benefit research left to the individual investor. Small capitalization company stocks may be more lucrative than stocks with larger companies. The values of the small cap have grown annually by over twelve percent compared to large cap values coming in at around ten.

This type of investment is not one to be made lightly with the intent to turn around and sell it back almost immediately. One of the reasons this method of investment works is because smaller, more unknown companies, will have stocks available at lower prices than the high profile ones. As the small company builds it’s brand name and becomes more sought after, the stock value will grow with the company. This is not a flash in the pan process.

Giant conglomerates are comprised of many committees who make decisions, or rather, discuss decisions that need to be made and make recommendations that are passed to other committees to deliberate over. As you can see, the larger the company, the larger amount of time it takes to pass new ideas and the longer it takes to get new products out to the market. Smaller companies have fewer employees, fewer levels of red tape, and a strong need for a quick turn around for decisions and products to hit the shelves. Small businesses need to move at a quick pace to stay productive. This also contributes to the climb of it’s stock values.

Another attribute of smaller companies is the potential to merge with slightly larger and possibly better known companies. The strength of both company names together adds a multiplier to the value of stock. When larger companies merge in very public ways, it can shake the confidence the public has with the company. The general masses will assume the company bought out was in trouble and wonders if keeping the stock will be wise. Fear in the economic realms will lead to hasty decisions and the large company stocks feel it the hardest.

For a patient investor, small businesses can be a component to help them grow their portfolios. While small cap stocks should not be the only food on the proverbial portfolio plate, it could be used as the main dish that was slow cooked to satiate the investor. However, with any investing diet, variety is the wisest and healthiest way to go.

Dividend Stock Investing – Lessons learnt in recent past

admin — Sat, 15 May 2010 08:51:14 +0000

The entire dividend landscape changed during 2008 and 2009, and it was not for the better. There were 288 companies that were forced to cut payouts just during the final quarter of 2008. Standard and Poor’s reported that there were another 804 public companies that followed suit the following year. The cost to investors was an additional $58 billion.

Before getting involved in dividend stock investing there are five major lessons you should learn.

1. Dividends are never guaranteed

There were many people who chose to ignore this particular lesson in the months and years that led up to the financial crisis. Collecting interest on investments like bonds and CDs is a given but that is not so with dividends. It is up to the board of directors to decide whether shareholders will receive cash dividends or not. It is in the best interests of the company for the board to attempt to maintain or even increase payouts because it is a sign that the company is financially sound. A company that is financially strong can, in turn, attract more investors.

2. Do not chase high yields

Greedy investors in recent years were taking higher risks to find acceptable yields. This was because market yields and interest rates were so low. This proved to be costly in the long run. Any dividend yield that is higher than 2.5 times the market average is something to avoid. With the current rate at two percent, you should avoid anything listed at five percent or higher.

3. Cash flow is king

Pay close attention to cash coming in and going out for at least the past five years. Focusing on earnings will not give you a true picture of whether a dividend will be sustainable or not. Make sure you account for capital expenditures and the amount that is left is the cash flow available to the company to buy back shares or pay dividends. This is called free cash flow. You also want to find out how much the company paid out in dividends annually. If the cash flow amount that is considered to be free is bigger that the dividends paid, then you can be assured that the company can maintain the current dividend.

4. Be selective

Be selective when you are choosing companies to invest in and keep your investments diversified. Cuts in dividends tend be widespread when the economy is in crisis. Do not rely solely on ETF’s or an index to protect you. You should know that the ETF is only permitted one rebalance each year. Many owners were left holding onto stocks that were suddenly not paying dividends at all or were paying out very low rates until the rebalance was allowed to occur.

5. It pays to diversify

It is still important to diversify. There is no doubt that the financial industry was hurt the worst over the last two years with deep dividend cuts. Even heavily diversified portfolios were hurt when the crisis hit but they were far less affected than those that were heavily weighted with financial stocks that were initially promising higher yields. Sector diversification is still very important even if you are forced to give up some yield at the outset.

With these five tips you will have no trouble building a portfolio of diverse companies that will yield above average dividends with enough free cash flow left over sustain continued growth.

Best Index Funds – Why to invest in index funds?

admin — Fri, 15 Jan 2010 10:19:50 +0000

Simply put, index funds are the funds which track a particular index in the stock market. These funds are not actively managed and therefore don’t need highly paid fund managers to run them. It is difficult to find the best index funds since all the funds tracking a particular index would have same stock mix in them.

The idea of index funds was created by the founder of Vanguard named John Bogle. He created a fund which tracked the Standard & Poor’s index ($INX) of 500 large companies. This index fund was not a hit straight away. It was slow to start with. But slowly people realized that this fund which is so passively managed was beating most of the actively managed funds on a consistent basis. And this has been the case ever since. Only one in three actively managed stock funds in operation since 1976 has beaten the Vanguard 500.

Since then, there have been hundreds of index funds which have been launched by all fund houses. These funds are launched on any index which depending upon market capitalization like large cap, mid-cap or small cap. These can be based on any specialty, international markets or even bonds as well.

The most popular players which have launched index funds are Vanguard, Fidelity and Charles Schwab

Large Cap Index Funds

FSMKX Fidelity Spartan 500 Index Investor

FSTMX Fidelity Spartan Total Market Index Inv

VFINX Vanguard 500 Index Investor

VTSMX Vanguard Total Stock Mkt Idx

Best Mid cap index fund

VIMSX Vanguard Mid Capitalization Index

Best Small Cap Index fund

NAESX Vanguard Small Cap Index

Best Specialty Index Fund

VGSIX Vanguard REIT Index

Best International/Foreign Index fund

FSIIX Fidelity Spartan International Index Inv

VEIEX Vanguard Emerging Mkts Stock Idx

VGTSX Vanguard Total Intl Stock Index

Best Bond funds

VBISX Vanguard Short-Term Bond Index

VBMFX Vanguard Total Bond Market Index

The investor should first choose which index he wants to follow and then pick one or more of the best index funds from that particular category.

Day Trading for Beginners – Strategies for Day Trading

admin — Mon, 11 Jan 2010 13:31:39 +0000

What is day trading?

Day trading for beginners means trading in which the stocks are bought and sold within the same day. Most of the time, the day traders try to use the large amount of capital which they have to make profits out of the small variations in prices of the stocks. There are various day trading strategies which are used by day traders.

Day trading Strategies used by traders

When it comes to day trading, the traders look for 2 most important factors. These factors are volatility and liquidity. Volatility is required for this type of trading since this is what helps the trader to make profits. He tries to buy stocks on small dips and then sell them even when there is small increase in the share price. The other important factor is the liquidity. This is required since the trader should have a good amount of cash to invest while doing day trading. Smaller capital means smaller profits. Liquidity means more stocks are being traded on a daily basis.

One of the favorite stocks for day traders is Sun Microsystems (NASDAQ: SUNW). The stock price is cheap and millions of stocks of this company are being traded every day. Some other example are Citigroup (NYSE: C), Bank of America (NYSE: BAC), Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC).

There are several different strategies that day traders utilize, including: swing trading, arbitrage as well as trading news, among others. Once the day traders finalize the stocks on which they want to do the trading, they use multiple tools to find the entry point. The different tools being used commonly are: Intraday Candlestick Charts, real-time news service and Level II quotes/ECN.

After making an entry, the next step is to finds a suitable target price. As mentioned earlier, the price movement may not be huge. There are different strategies which day traders use to get to a target price which include scalping, fading, day pivots and stock momentum.

Day trading is a very risky business. The day trader has to master the skill over the years. He should have proper channels to remain updated every minute. Most of the day traders fail when they start doing this type of trading. Hopefully, this day trading for beginners guide would be useful for some. After some research and practice, they should be able to master this type of trading.

Disclaimer: The methods described in this article (Day trading for Beginners) are for educational purposes only. The author and the publisher assume no responsibility for your trading results. Day trading involves a high degree of risk. No recommendation is being made to buy any stock, commodity, option or other financial instrument.

Best stocks to buy in mid cap companies

admin — Tue, 01 Dec 2009 10:40:58 +0000

Mid cap companies are the companies which have the market capitalization between $2 billion and $10 billion. In this article we will talk about some of the best stocks to buy in this category. These companies lie between the small cap companies and large cap companies. These are big enough so that they can sustain their past performance and they are not yet large that they have past their prime. They have the potential to grow fast and become one of those large cap companies like Microsoft (Nasdaq: MSFT), Apple (AAPL), JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC) or Cisco Systems (CSCO).

The mid cap companies can picked from one of the various indices given below:

Dow Jones Wilshire U.S. Index: On this index, stocks ranked within the range of 501 to 1,000 are called mid cap stocks.
S&P MidCap 400 Index: It comprises of 400 domestic mid cap stocks. This is a market-value weighted index and represents one of the first yardsticks for monitoring the price movements of mid cap stocks.
Russell MidCap Index: It is a subset of Russell 1000 and Russell 3000. It represents 800 companies with a market capitalization between $8 billion and $10 billion. The median value ranges from $4 billion to $5 billion. The index is upgraded annually.

Some of the best stocks to buy in mid cap category are given below. Most of them appear in the Forbes list of top performing mid cap companies of 2009:

ABM Industries Inc (ABM)

Citrix Systems Inc (CTXS)

DreamWorks Animation SKG Inc (DWA)

Endo Pharmaceuticals Holdings Inc (ENDP)

Garmin Ltd (GRMN)

MSCI Inc (MXB)

Red Hat Inc (RHT)

Microchip Technology Inc (MCHP)

Myriad Genetics (nasdaq: MYGN)

Deckers Outdoor (nasdaq: DECK)

InterDigital (nasdaq: IDCC)

Netflix (nasdaq: NFLX)

Allegiant Travel (nasdaq: ALGT)

Quality Systems (nasdaq: QSII)

China Southern Airlines Co Ltd (NYSE: ZNH)

Agnico-Eagle Mines Ltd (NYSE: AEM)

China Eastern Airlines Corp Ltd (NYSE: CEA)

Tidewater Inc (NYSE: TDW)

CTC Media Inc (NASDAQ: CTCM)

Strayer Education (nasdaq: STRA)

Aeropostale (nyse: ARO)

Amedisys (nasdaq: AMED)

Gannett Co. (NYSE:GCI)

Dynegy (NYSE:DYN)

Wynn Resorts Ltd. (Nasdaq:WYNN)

Advanced Micro Devices (NYSE:AMD)

Tenet Healthcare (NYSE:THC)

Syntel (nasdaq: SYNT)

Panera Bread (nasdaq: PNRA)

F5 Networks (nasdaq: FFIV)

Atwood Oceanics (nyse: ATW)

EMini Trading – E-mini S&P 500, E-mini NASDAQ and Emini Dow Jones

admin — Thu, 08 Oct 2009 06:10:52 +0000

What is emini trading?

Emini trading is kind of a stock market future trading which is more suitable for the smaller investors. There are many types of emini trading including Emini S&P 500, Emini NASDAQ 100 and E-Mini Dow Jones. Out of these the Emini S&P 500 is most popular and most widely used among traders. This is because the S&P 500 index represents more companies and a broader index as compared to Dow Jones and NASDAQ.

Emini are called contracts for smaller investors because the size of a emini trade is almost 1/5th of the regular contract which makes it more accessible to the smaller investor. Even then, small here means around $60,000 which is comparatively smaller than $300,000 which you will need for regular future contracts.

The E-mini is traded electronically, and you can do it 24 hours a day. Therefore, there are a lot of traders who do this as day trading activity. What that means is that these traders do multiple trades in a day. They try to buy on small dips and then sell when there is even a small increase in price. This makes emini popular among day traders but this is a very risky strategy to make money in stock market.

E-mini S&P 500 – E-Mini S&P is often abbreviated to a general term “E-mini” and designated by the commodity ticker symbol ES. The E-mini S&P 500 is very popular it has provided excellent results over the period of time. Volatility is also high enough to make it possible for investors to trade profitably.

E-mini NASDAQ 100 – This product was launched following the success of Emini S&P 500 product. It is associated with ticker symbol NQ. As the name suggests, this is based on the NASDAQ index which is a key benchmark of technology, telecom and biotechnology issues.

E-mini DOW JONES – The ticker symbol for this product is YM. The E-mini Dow Jones future contract is especially interesting for the trader with a smaller account, because of the smaller margin requirement.

You can contact your broker or click on the link to the Chicago Mercantile Exchange (CME-GLOBEX) to get up to date information on margin, trading hours etc for emini trading. It is strongly suggested you start with the QQQQ trading before trying the E-mini S&P 500, E-mini NASDAQ 100 or Emini Dow Jones unless you’re an experienced trader and/or have traded futures before.

Stock market trading tips

admin — Wed, 09 Sep 2009 01:36:20 +0000

Stock market trading is a way to make money and that too way to big money than you can imagine. Hey but wait it is also a way to lose your money very easily. The best thing is that there is no short term thing as a money generating cash flow.

Stock market is all about guts and risk taking ability and confidence in stock research the way you think about the stock. Read this here at best stock investments advice

Before you start your journey as a stock market for beginners advice I would tell you that you ask yourself a few questions. These questions are

1) Are you in the stock market for long term

2) How risk can you take?

3) Do you know all about the stock market terminology?

4) Have you ever traded online?

There is a lot of information provided everywhere the main aim that you should have is to go for the information in structured manner then apply these strategies to use in your trading account. Yes the first step to learn all about the stock picking and that is done by these two important things

Fundamental Analysis of stocks – Your learn all about stocks, industry segments and the macro economy

Technical analysis – it is all bout trends and making money by catching the trends early.

Then the next step is to read the philosophy of a lot many stock market gurus and get some insight into various theories like the value investing or the momentum stock investing or day trading.

Once that is done then go in for a opening up a discount brokerage account with an online stock broker. Make sure you compare the stock broker before investing. Again the best thing to do is to make sure that you have the best trading platform available to start the investing.

Define your trading strategy – Armed with all this knowledge define your trading style and also build a diversified portfolio.

Once you have all the stock market tips then I would say that now you can begin making money on the stock market however make sure that you are not greedy. Also try to make intelligent decisions rather than rash decisions. Always have some cash available to you for investing just in case you find good opportunity.