Continue reading Chasing Value: EZCorp Still a Bargain

Chasing Value: EZCorp Still a Bargain originally appeared on BloggingStocks on Tue, 22 Mar 2011 15:30:00 EST. Please see our terms for use of feeds.

Continue reading Has the PE Ratio Become Outmoded?

Has the PE Ratio Become Outmoded? originally appeared on BloggingStocks on Mon, 30 Aug 2010 14:30:00 EST. Please see our terms for use of feeds.

We'd all like to know the secrets for buying winning stocks. Here's the first one: there is no secret. No one formula and certainly no one data point is THE answer to finding the next hot stock. That isn't how investing works. But there are certain numbers that will help increase the odds of finding a stock that may go up. Here are some that will help.

Earnings. In real estate, the three most important words are location, location, location. In successful stock investing, they are earnings, earnings, earnings. Ultimately, all investing comes down to earnings. Earnings are what investors own. They contribute to Book Value (see below). They are the reason anyone invests in a stock: to reap the future rewards of a successful company. Earnings growth is what an investor wants to see. The stronger the better. Companies increasing earnings by more than 10% each year for the last three years have been exceptional as the economy has diminished. Look for companies that can grow earnings well above average no matter what the economy does.

Continue reading Comfort Zone Investing: Four Powerful Numbers for Picking Stock Winners

Comfort Zone Investing: Four Powerful Numbers for Picking Stock Winners originally appeared on BloggingStocks on Sat, 13 Mar 2010 10:30:00 EST. Please see our terms for use of feeds.

There's a number almost synonymous with investing. It's the P/E ratio. That's Price to Earnings. It's only one number, but it's a powerful one, one that can tell an investor quite a bit about how other investors value a stock. Never buy a stock based on one number, but a good number to start with is the P/E.

The P/E is calculated just like it's spelled. Take the price of the stock (P) and divide it by the last full year's earnings (E). That's what's called the Trailing P/E. It's the most common P/E ratio, the one most investors ask about when they inquire: "What's the P/E?" of a stock.

A second P/E is the Forward P/E. It's the one that uses the projected earnings for next year as the denominator. If analysts are right in their projections for a stock's earnings, this P/E will give you a reading as to the "cost" of buying a stock based on future results.

Continue reading Comfort Zone Investing: The power of one number - the P/E ratio

Comfort Zone Investing: The power of one number - the P/E ratio originally appeared on BloggingStocks on Sat, 18 Jul 2009 10:30:00 EST. Please see our terms for use of feeds.

Continue reading Reiterating modest expectations: Think holding Dow 8,000

Reiterating modest expectations: Think holding Dow 8,000 originally appeared on BloggingStocks on Wed, 15 Oct 2008 15:40:00 EST. Please see our terms for use of feeds.

Few professional money managers have had the success Peter Lynch has had. The former Fidelity manager of the widely-held Magellan mutual fund racked up great returns year after year in his tenure at Fidelity. After he retired in the 1990s, Lynch wrote a few books (which are worthy reads, I might add), and aimed them at the "everyman" of investing: the normal American consumer (hopefully, investor).

Along with Vanguard founder John Bogle, Lynch is someone I've followed for some time, and following much of what he said has, well, done right by me. But, after having talked with many a business associate and family member in the past year -- as the market has swayed to and fro -- few of them follow Lynch's investing strategy. That is, if they have an investing strategy at all beyond pumping 0.5% into that 401k and putting 50% of their portfolios into their employer's stock. Yikes!

The average mutual fund is a dog and laggard, yet salespeople rope everyday people into these expensive funds by the boatload. Bogle would have said, "just buy index funds and be done with it." Lynch would have said, "check the price-to-earnings ratio, make an informed choice, and be done with it." Both are exemplary ways to examine and adjust your portfolio.

Does it take some self-education? Sure it does -- but hey, it's only your money, right? Why would anyone pay an underperforming fund manager when buying a no-cost index fund produces better returns? Yes, in many cases the situation is a bit more complex than that, and tax rules and holding periods (among other things) come into play. Still, do you invest like Peter Lynch did? If not, why?

Do you invest like Peter Lynch did? Maybe you should! originally appeared on BloggingStocks on Sat, 22 Sep 2007 08:40:00 EST. Please see our terms for use of feeds.

I have written up eight companies that have a chance to be among the top 25 stocks for the NEXT 25 years and I thought it might be time for some discussion. You, the readers have sent in quite a bit of responses to the first six names. Most of your responses have been very positive and I certainly appreciate it. But many of you have been raising questions that I believe need a general response.

Let's put a few ideas and myths to rest once and for all.

The top 25 for the NEXT 25 years are bound to be smaller capitalization companies. By definition, they have to be. I recommend a number of companies on my website that are of a larger capitalization, but to make the list, the law of large numbers is against the larger cap names. If a $20 billion market cap names five folds over the next 10 years, that's a great return and no one should be unhappy. But if a $500 million market cap name goes to $20 billion in value, that's a 40 times return. So, the names will be of a smaller cap nature.

With high-growth companies early in their development, don't get hung up on lack of dividends. High growth companies do not pay dividends, nor should they. You want every penny of after-tax earnings to be plowed back into the business. Mature companies tend to pay cash dividends because their growth rates have slowed, the business lines are well-funded, and the excess cash is returned to shareholders. The downfall is that the stocks will not grow as fast in value as a high-growth company that is executing well. The big joke among portfolio managers when Microsoft Corp. (NASDAQ: MSFT) declared its one time $3 dividend and initiated a quarterly dividend was that the party was over! When is the funeral? Microsoft was signaling that the high-growth, plow the earnings back into the business era was over. The stock traded sideways for nearly three years as Microsoft tried to get its footing back.

Continue reading The Top 25 Stocks for the NEXT 25 Years -- Discussion

The Top 25 Stocks for the NEXT 25 Years -- Discussion originally appeared on BloggingStocks on Sat, 19 May 2007 08:40:00 EST. Please see our terms for use of feeds.

In a column in Sunday's New York Times, newsletter guru Mark Hulbert makes the case that small-cap stocks are significantly overvalued, and that large caps are undervalued. His argument is based on expanding price/earnings multiple for small-cap stocks, while the average large-cap P/E is down to one third of what it was seven years ago. This, in part, explains the underperformance of stocks like Home Depot Inc. (NYSE:HD) and Wal-Mart Stores(NYSE:WMT), whose CEOs have taken some heat for their heavy compensation in the midst of a flat stock price. These companies have provided consistent earnings growth, but the multiples have contracted to the point where the stock has remained relatively flat.

But are these companies on the verge of reward, or at least avoiding the downturn that Hulbert seems to be predicting for small-caps? I wonder. The piece does not provide any data on this going back earlier than 2000. In his book The Only Three Questions that Count, Ken Fisher made the case that the price/earnings ratio of the market is not an accurate predictor of whether stocks will move up or down. In fact, stocks seem to move higher when they exhibit high P/E ratios. I wonder if this phenomenon would hold true for the spread in the P/Es between small-caps and large-caps.

Before you go off and dump your small-caps to buy General Electric Co. (NYSE:GE) and Exxon Mobile Corp.(NYSE:XOM), remember this: While small-caps may underperform large-caps as a whole, the predictive value of this for any one stock is almost nonexistent; there will be underperformers and out-performers in both categories. I believe that investors will find the most success with stock picking in small-caps and micro-caps, where research is more likely to pay off (with large-caps, everything is often already factored into the price).

Does the P/E ratio matter? originally appeared on BloggingStocks on Sun, 18 Mar 2007 11:10:00 EST. Please see our terms for use of feeds.