Getting value for money is a mantra that you probably want to apply to numerous aspects of your daily life, and it is also a philosophy that will serve you well when it comes to being a successful investor.
If you are looking to access stock prices and check on your current investments you can try MoneyMorning.com here, and hopefully you will like how things are progressing, if you successfully managed to choose some quality stocks that offer decent value.
Finding those market-beating stocks
There are so many aspects to developing a successful stock-picking strategy, all of which can play their part in determining whether you ultimately make a decent yield and get the timing of your entry-point just right.
One potential way of identifying stocks that have the potential to rise in value from their current price, is to look at their P/E ratio.
The general line of thinking amongst a core of investors is that a low P/E could be viewed as a positive sign and a possible buy indicator. What should be remembered however is that the basic P/E is calculated on past earnings, which may not necessarily be such a reliable guide to what might happen to their earnings in the future.
Investment gurus suggest that if you want to achieve a better strike rate in identifying companies that are truly offering value at the current time, you need to look beyond the simplistic approach of just scouting for a low P/E and take a look at the projected forward P/E and CAPE ratio, so that you have a broader picture of their potential.
Companies that enjoy a competitive advantage
There is a term attached to companies who have a competitive advantage that helps them stay ahead in their particular market and fend off rivals who would otherwise eat away at their profit margins by taking a slice of their market share.
These companies are considered to enjoy what is called an economic moat. The term is fairly self-explanatory when you consider the advantage that someone in a castle has from fending off his enemies if he has a moat to keep them at bay.
Apply that analogy to stock picking and you can soon see that if you can find these companies with an economic moat to protect them, you might have a better chance of getting a decent return on your investment, if the company can maintain their competitive advantage and generate consistently high returns for their stockholders.
Increasing competition in markets can quickly erode the advantage that a business might have enjoyed only a short time ago, which can often spell bad news for the stock price. This is why it could be a rewarding strategy to try and identify businesses that have a greater level of resilience than others.
Cheap doesn’t always equate to value
It is always worth remembering that just because a stock is cheap, it does not follow that it is offering value to investors.
Investing for value is rarely as cut and dried and basic as punting low-priced stocks in the hope that the price rises in the future. You will need to be far more diligent in your approach and learn how to drill down a bit deeper and look at a balance sheet for some more positive clues, which might send you running if you don’t like what you see, or every now and again, set your pulse racing as realize that you may just have found a stock that is currently undervalued.
Some of the other data that can often yield some vital clues, include price-to-sales ratios and a look at how much debt they are carrying in relation to their current assets.
The type of company that you are evaluating will also have a bearing on what weight of importance you attach to certain ratios.
As an example of this strategy in practice, if you were evaluating a commodity-focused business and trying to ascertain their current value, it is normally more important to look at price-to-book values rather than relying on the P/E ratios. The reason for this is that their earnings will be based on commodity values.
If you want to beat the market swings and enjoy success as an investor, you will have to find where the value lies. The clues are almost always there for all to see, it is just a case of knowing where to look and how to interpret what you see and turn it into a value stock buy.
Kristin Witkowski has experience in trading stocks and shares. Extremely knowledgeable, Kristin has just started to share that knowledge with others – Her articles appearing on finance and investment blogs.