How to Pick a Stock?
Quantitative I have heard many experts said this, especially in this economic down term (not recession yet): B.S.W.E. –buy stock with earnings B.P.N.P.—buy profit not promise Here are some basic index or factors that will affect stock price 1. P/E Trailing P/E – price / reported earnings Forward P/E – price / Analyst estimated earnings It is hard to tell from P/E ratio itself, different industry has different P/E ratio Only in auto industry, buy high P/E, sell low P/E 2. PEG = P/E / Growth Rate (ideally, the longer the term you use, the more accurate) If PEG = 1, stock price is fairly priced If PEG > 1, stock price is under priced, a good sign to buy If PEG < 1, stock price is over priced 3. β – stock price movement compare to S&P index (as of 1) E.g. If β = 0.75, it means price moving 75% compare to 1, less volatile Some people like to see their stocks move up and down, they feel excited about it; some don’t. It’s your preference to buy a more or less volatile stock. 4. Div’d Yld – dividend paid / stock price The higher dividend, the riskier the stock 5. PSR = Price / Sales Ratio If PSR <1, a good indicator that the stock has chance to do well If PSR >1 Not a good sign Grocery industry tend to be low 6. EPS – this is a company’s bottom line, looking for a solid growth trend Using Value Line Coca-Cola (NYSE-KO) as example 1. PE ratio = 20.7 2. PEG = 1.76 3. β = 0.75, less volatile than average market 4. Dividend Yield = 2.5% 5. PSR = 53.66/13.45= 3.98 6. EPS = 2.95 7. ROE is 12%, normally, large cap average ROE is 8% Historical High $88.9 in 1998 and Low $36.1 in 1996 in the past 20 years. Analyst expected price in 2010-2012 high is $85 and low is $70. Lastly, my study combined with analyst recommendation shows RRC, ENOC, GFA, WIN are good catch. |