VALUE INVESTING: STOCKS AND STRATEGIES
Value investing is all about finding undervalued stock prices – good companies trading at a relatively low price. Then practice what you've learned with our free stock market simulation.
BEST VALUE INVESTING STOCKS
HOW TO VALUE INVEST
Value investing is tricky because the value placed on a business is often subjective. While the information everyone has access to is the same, their valuations can differ greatly. That's because investors have different risk tolerance. A risk averse investor wants to see dividends and cash flow, but a risk taker might be looking for high growth opportunities.
The intrinsic value of a company is entirely subjective. You can look at historical data but that doesn't guarantee a trend for the future. The trick to value investing is to buy something for less than what it is worth even though you don't necessarily know how much it will be worth in the future. That guesswork is what separates great investors from poor ones.
Remember, value investing isn't just about buying undervalued stocks, its about buying good undervalued stocks. But what makes a good stock? Here are a few tips.
High Dividend Yield
This is the percentage that the stock pays out relative to its price. The higher the better, but its important to only compare in the same industry.
Low Price to Book Ratio
Used to compare market value to book value. The lower the better, it gives you an idea of how much would be left over if liquidated.
Low Price-to-Earnings Ratio
Compares the price of the share to the earnings each share generates. Paying less for more profit is the name of the game.
WHAT IS VALUE INVESTING?
Value investing is a strategy that involves buying companies that are undervalued in the marketplace. These companies are not hidden gems – they are good companies trading at a lower price than they should be. When we say value, we mean getting a good deal. Its almost like searching for stocks that are on sale.
Value stocks are undervalued compared to their fundamentals. That means that their financials suggest a higher price than what is being charged. This can mean a low price-to-earnings ratio and high dividend yield. The market is not 100% efficient, sometimes there are companies trading for less than they are worth. Finding these stocks is the key to your value investing strategy.
VALUE INVESTING STRATEGY
At its core, value investing is actually quite simple. Just look for companies that are trading for less than they are actually worth. Seems simple enough, but its actually a bit tougher than it looks. In principal, the value investing strategy relies on finding undervalued companies, buying shares and then making money when the market corrects and these previously undervalued companies go up in price. In this way, the strategy is looking for inefficiencies in the marketplace and taking advantage of what the general market sentiment is.
Warren Buffet is the champion of value investing. He always said that it is better to buy a good company at a fair price, than a fair company at a good price, and he's right. Value investing is not about buying cheap companies and hoping for the best. Its quite the opposite. The value investor isn't just looking to make a quick buck on a market trend, but to invest in companies that have strong underlying business models. If its good enough for one of the greatest investors of our time, it can work for you.
A long-term strategy is essential for value investing. Do not be wavered by short term factors like volatility or daily fluctuation of prices – a good company is a good company even on a bad day. Questions to ask when looking for high value stocks include: How is the cash flow, are they generating profits from their core business operations, and what is the potential for growth?
BEST STOCK NEWSLETTER OF 2020 (October 11, 2020 UPDATE)
TWO (2) of this year's Motley Fool Stock Picks Have Already QUADRUPLED, ONE has TRIPLED, and 2 more have DOUBLED in just 9 Months!
We have been tracking ALL of the Motley Fool stock picks since January 2016. That's almost 5 years and 114 stock picks. As of Friday, October 9, 2020, TWO of their 2020 stock recommendations have already quadrupled (ZM and TSLA), another one has tripled and 2 more have doubled (SHOP and NVTA all in just the first 9 months of 2020.
In addition, 7 of their 2019, 9 of their 2018, 9 of their 2017 and 12 of their 2016 picks have also doubled. Best of all, over the last 5 years the average stock pick is up 144%. That beats the SP500 by an average of 106%. And that's even accounting for all of this COVID mess that has wreaked havoc on most stocks. BUT, the Fool has done so well because they have quickly identified stocks this year that will perform well in the post-COVID world. THAT is how the Fool consistently does so well--they adapt and constantly pick stocks before everyone else realizes the opportunities.
- Zoom Video (ZM) – April 16, 2020 pick and it is already up 230%
- Shopify (SHOP) – April 2, 2020 pick and it is already up 177%
- Zoom Video (ZM) – March 19, 2020 pick re-recommended and it is already up 301%
- DexCom (DXCM) picked Feb 20, 2020 right before the market crashed and it is still up 33%
- NVTA picked February 6, 2020 is up 102%
- Tesla (TSLA) picked January 2, 2020 before the crash and it is up 373%
- HubSpot (HUBS) picked December 5, 2019 and it is up 92%
- Netflix (NFLX) picked November 21, 2019 and it is up 55%
- Trade Desk (TTD) picked November 11, 2019 and up 146%
- Zoom Video originally picked Oct 3 and it is up 546%
- SolarEdge (SEDG) picked September 19, 2019 and it is up 125%
Now, no one can guarantee that their next picks will be as strong, but our 5 years of experience has been super profitable. They also claim that since inception, their average pick is up 529% and now we believe them. Many analysts are saying that we have passed the bottom of this COVID crisis and "certain" stocks will recover quickly and be the new leaders. So make sure you have the right stocks in your portfolio.
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FYI -- As of October 25, 2020 the Motley Fool's Oct 1st pick PINS is already up 19%, their Sept 3 pick FVRR is already up 36%, their July 2 2020 pick is already up 26%; their June 4th pick is up 41%, May 7th pick NOW is up 34%, their April 16th pick ZM is up 240%, their April 2nd pick SHOP is up 196%, their March 19th pick is up 313%, their February 6 pick is up 104% and their January 2 pick is up 388%.
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- November 5, 2020 - Tom's New Single Stock Recommendation
- November 12, 2020 - Tom's 5 New Best Stocks to Buy Now List
- November 19, 2020 - David's New Single Stock Recommendation
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