How to Value a Stock

I did some serious study this weekend and came across a few great articles about how to value a stock and how to know when a stock is undervalued and is “on sale.”

It is important to be aware of overall market conditions that will bring stocks down to discount levels.  With that said regardless of market conditions if a stock is cheap then eventually people will buy it.  That is the case with a few stocks that I checked out this weekend.

Before I post my list I want to give the reasoning behind the list so these picks will make sense.  I read several articles that talked about how to value stocks.  They all had good approaches and formulas:

http://stocks.about.com/od/evaluatingstocks/a/Pricesale020305.htm

http://www.stockpriceanalysis.com/

http://ezinearticles.com/?How-to-Calculate-a-Stock-Price&id=2589837

This last one however had a more comprehensive formula that just made sense in how to value a company’s stock.  If you take what a company is worth right now if it was going to be sold you would have a good indication of its value.  That formula would take into account the assets minus the liabilities, available stock, and future earnings growth.  This will give you what the stock price should be trading at based on the value of the company.  If you compare that to what the actual price is you can find some seriously undervalued stocks (and some seriously overvalued ones too).  This method will also help you determine a target price to take profits.

I added another component to this method to further refine the stock picks.  This was to look at the analyst reports on Yahoo Finance to come up with a professional opinion of the target price for the stock.  I look at the high, low and mean target price based on 20-30 analysts opinions and compare that to where the stock is currently trading.  

By calculating the sell-now value of the stock and the analyst target price I can see if a stock is undervalued or not and also set my “take-profit” price.

With that said here are my stock picks for this week (they are not in any particular order):

CMCSA

Trading at 31.36 according to the formula, the value of the company is 54.33

The mean analyst target price is 34.6 (high 41, low 31)

TGT

Trading at 58.07 according to the formula, the value of the company is 112.51

The mean analyst target price is 63.67 (high 69, low 54)

MSFT

Trading at 30.18 according to the formula, the value of the company is 61.97

The mean analyst target price is 35.69 (high 40, low 29)

INTC

Trading at 26.16 according to the formula, the value of the company is 60.58

The mean analyst target price is 29.41 (high 35, low 19)

CAT

Trading at 84.61 according to the formula, the value of the company is 182.3

The mean analyst target price 124.68 (high 142, low 95)

WMT

Trading at 71.36 according to the formula, the value of the company is 113.99

The mean analyst target price is 67.39 (high 79, low 55)

Although these prices are based on the actual “sell-now” value of the company, you have to take into consideration the current market conditions and any news coming out about the company.  In short...Do your homework.

P.S… If you donate $5 ...I will send you the Excel Spreadsheet with the Stock Valuation Calculator plus the list of 25 stocks that I studied.  Also included on my spreadsheet is a list of 37 companies that pay the best dividends.

Thanks for viewing my blog!

Market Update 7-2-12

The market tried to continue the momentum from Friday but got stalled after bad manufacturing data came into the mix at around 10:15am.  I took a position in WMT and GE early but got hammered after the data came out.  This is one of those lessons to wait for the market to absorb the morning news and then trade after 10:30am.  I got too confident after taking my profits on Friday.  I was however saved by my ATT trade that continued to roar higher.  Not all was lost.  Let’s see how things go tomorrow.  I’m not too worried because the technicals on GE look too good for it to reverse the that up trend it’s in, and WMT has always grinded higher after pulling back to a support level.  Some analysts have put a $79 price target on WMT so things should pop up this week.

If you took a trade in DG, TWX, CMCSA, or FDO from off my “Stocks to Watch” list, then you had a good day today.  Those stocks didn’t even flinch after the bad manufacturing data.  The other stocks on my list didn’t do too bad they just went back to break even.  

I meant to write about another speculative stock that I read up late last night after I shut down my blog and it was a monster of a play today.  It was only trading around $1.43 yesterday but went up to $1.56 today.  Nova Mining (NVMN).  They mine lithium.  Now of course you mind is already thinking.  Yes lithium is in every battery that we are using from cars, computers, smartphones and tablets.  This company is in talks with Apple who is trying to lock in supplies at a low price.  This is a strategic move on Apple to keep their costs low and profit margins high.  Check the link to the article below. As a side note it was also mentioned that Apple may be looking at Tesla Motors.  That would really make things interesting.

http://finance.yahoo.com/news/nvmn-buzz-aapl-possibly-buying-124000958.html