Question

1.What are 7 value signs when investing in a stock market?

2. What are 3 clues to value when investing in a stock market?

(P.s these are as specifc as the question gets)

Answer 1

1. 7 Value signs when investing in a stock market?

• Using Standard & Poor’s rating system and required companies to have an S&P Earnings and Dividend Rating of B or better. The S&P rating system ranges from D to A+. Stocks with ratings of B+ or better, just to be on the safe side.
• Buying companies with Total Debt to Current Asset ratios of less than 1.10. In value investing it is important at all times to invest in companies with a low debt load, especially now with tight lending in a weak economy. Total Debt to Current Asset ratios can be found in data supplied by Standard & Poor’s, Value Line, and many other services.
• Check the Current Ratio (current assets divided by current liabilities) to find companies with ratios over 1.50. This is a common ratio provided by many investment services and is especially important now, because you want to make sure a company has enough cash and other current assets to weather any further declines in the economy.
• Find companies with positive earnings per share growth during the past five years with no earnings deficits. Earnings need to be higher in the most recent year than five years ago. Avoiding companies with earnings deficits during the past five years will help you stay clear of high-risk companies.
• Invest in companies with price to earnings per share (P/E) ratios of 9.0 or less. Look for companies that are selling at bargain prices. Finding companies with low P/Es usually eliminates high growth companies, which should be evaluated using growth investing techniques.
• Find companies with price to book value (P/BV) ratios less than 1.20. P/E ratios.
• P/BV ratios are calculated by dividing the current price by the most recent book value per share for a company. Book value provides a good indication of the underlying value of a company. Investing in stocks selling near or below their book value makes sense.
• Invest in companies that are currently paying dividends. Investing in undervalued companies requires waiting for other investors to discover the bargains you have already found. Sometimes waiting period will be long and tedious, but if the company pays a decent dividend, you can sit back and collect dividends while you wait patiently for your stock to go from undervalued to overvalued.

2. 3 clues to value when investing in a stock market:

• The company generates high returns on capital with little to no leverage:

  The ultimate ability of a company to generate returns for its long-term owners over many decades is going to be determined by the return on capital it produces. The best businesses produce high returns on capital without the need for a lot of, or any, borrowed money. Instead, they are profit-printing machines that churn out cash which the owners can extract without harming the core enterprise. Within this basic truth is the secret to the reason as to why certain industries tend to produce a disproportionate share of the most successful investments over 25+ year periods.

  Alcohol, tobacco, laundry detergent, dish soap, chocolate … done right, a business in an area such as these can make a lot of money without constantly having to make large capital expenditures the same way a steel mill might require.   

• The company’s products or services have some sort of durable competitive advantage:

  In cases where consumers are fiercely loyal to a product or service, the manufacturer or provider can generally charge higher prices. This leads to a feedback effect where they grow larger, gain better economies of scale, and then generate even more surplus cash flow.

  That surplus cash flow allows them to pay for increased marketing and innovation which, in turn, drives brand loyalty even more. This is a virtuous cycle that can produce a lot of wealth for those who are patient enough to ignore the stock market and stick their stock certificates in a vault for fifty years.

• The company’s management has a history of putting the interests of shareholders first:

They have a history of returning surplus cash in the form of intelligently-executed share repurchase plans and/or a dividend that grows at a rate comfortably in excess of the broader rate of inflation in the economy.