H&W in the Media
5 Tips to Choosing Quality Value Stocks
For those without the power of clairvoyance, investing is murky. It’s hard to tell if you’re buying or selling at the right time and emotions tend to get the best of us.
There’s good news, though. Value investing, a popular school of thought regarding how to find attractively priced stocks, can remove many of these prominent anxieties. It’s a maddeningly simple philosophy: scour Wall Street for great companies that should dominate their industries for years to come. Then, buy stock in those companies when they’re cheap, and wait it out.
Eventually, the market will price that stock correctly. That is, much higher.
But how does one find these market-beating value stocks? There’s no universal how-to manual, but if you use these five tips, you’ll be ahead of the rest of the pack:
Consider various price-earnings ratios. When you divide a stock’s price by its earnings per share, you get the famed price-earnings ratio. P/E is easily the most ubiquitous ratio on Wall Street, and value investors have a stubborn tendency to hunt for stocks with lower-than-average ratios.
There’s just one thing: The earnings used to calculate the P/E are past earnings.
Investors, says Kevin Mahn, chief investment officer at Hennion & Walsh, “are not buying into past earnings but rather future, potential earnings of a company.” That’s why it’s important to consider future earnings. But don’t think that strategy is infallible, Mahn says, since future earnings are always estimated.