How To Play This Market Nosedive

I have read a lot of strategies over the years and the common idea that sticks out is to buy when everyone else is selling and to sell when everyone else is buying.  This may seem obvious but not when the emotions of the market get to you.  It goes against the natural feeling that we all have of self preservation.  Whenever we see a crowd running away from something our own nature is to run with the crowd because there must be something dangerous in that direction.  The strange thing is we have not seen it for ourselves. 

Here in lies the issue.  You must investigate something before you run away from it.  Take the time to research a stock and find out whether the company is being managed well.  Then look at the financials as well as the technical analysis.  Lastly consider the market sector.  Is there still potential growth in this sector and is this company in a strategic position to take advantage of it? When you are confident in the direction of the company, do not worry about jittery fluctuations in the market based on insufficient data and world events.  Consider a drop in the stock price an opportunity to buy that stock on sale. 

I Am Not a Hype Investor

I am not a hype investor.  I’ve seen it many times over the years.  People get hyped about a stock because of a media buzz or worse…a social media buzz, and get taken advantage of after they put all this money in the stock.  Whether it’s a penny stock or one on the major exchanges, there are folks who are going to inflate the value of a company in order to jack up the stock price and then cash out off of everyone else’s expense who have put money in believing the hype.  I’ve been there, I caught the hype bug over a penny stock and it did go up for a day or so off of the buzz, then it tanked and I lost some money.  One of my friends lost more than I did.  Thankfully I didn’t jump in with any large amounts.  

Take your time and study the value of a company over time.  If there is no information about the company on the web, then I wouldn’t invest in it.  Let the big spenders and cowboys have the wild west.  I’m investing to build wealth for myself and my family.  I look for bargains when prices of stocks go down and get in on the upswing.  I also focus on dividends for monthly income and overtime the value of my investments has grown.  Have a long term plan not a short term get rich quick scheme.  This will help you continue to add value to your investment portfolio. 

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.

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