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Mom's Method of Stock Research: Part One
Linda Goin
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Just when I think I've seen it all is usually when I discover something new. Take last week's article on my New Year's resolution to become more aware - as I was writing this article, I just became aware BUYandHOLD has "Stock Baskets" for sale. Wow - what a convenience for the busy investor!
Each basket includes the top ten stocks purchased at BUYandHOLD overall and within each industry sector. Cora and I browsed through them just to see what other investors are craving. There's a lot of variety, but a few names pop up consistently in various baskets. It was interesting, because some of the stocks were very familiar to us - we felt a certain validation for the stocks we've chosen over the past year.
Some of the stocks in the lists had us scratching our heads, wondering why they were so "popular." Were we missing something? We decided to pick one of these stocks and do a bit of research at BUYandHOLD. If you don't know where this is leading by now, I'll be up front with you - we're going to learn how to read the information in the BUYandHOLD stock research section.
Listed on the research page are the top ten overall stocks at BUYandHOLD and a list of each industry sector. A little further down the page, you'll see menus to search for companies by actual name or by ticker symbol. Pick a company - any company - and follow us as we explain our convoluted - yet logical - method of researching stocks. Have a pencil and piece of paper handy, as you'll need to make a few notes for yourself.
When you get to the research page for your chosen stock, go to the menu on the left and select the "quotes" page. This is the easiest page to read, and has the most convenient overall information. The first item we see is the last quoted price of the stock (delayed - not real-time), and the dollar amount of change for the day on the right. The opening price is on the next line, so we have an idea of how far the stock has risen or fallen, along with the percentage of change from the opening price.
This percentage is more important to us than the actual dollar price change. If you have a stock valued at $80 per share, and it made a 10% change during the day, it means the stock either gained or lost $8 per share. If the stock is only $10 per share, the stock made or lost $1 per share. If you have 100 shares of the $80 stock, you've gained or lost $800. If you held 100 shares of the $10 stock, you gained or lost $100. Usually a 10% move in either direction means the stock is fairly active. The stock might have a history of fluctuating 10% either way during a day. Two ways to find out about this is by daily volume comparison, or through company news.
Check out the volume right below the percentage (we'll skip bid and ask - since these are not real-time quotes, they're usually not applicable). Pick up that pencil and record this figure, as we'll find out later if
this is normal daily volume for the stock.
Then, we take a look at the high and low prices for the day so far, as well as the 52-week highs and lows. We get an immediate picture of where the stock is right now by comparing the current price to the 52-week highs and lows. You don't have to write any of this down, as you'll get a fuller picture of this when we look at the company's chart. You can also see here which exchange the stock is listed with, so you know where actual trading takes place.
Finally, we have the P/E ratio. Don't let this scare you - a P/E is simply a Price to Earnings Ratio, which some folks declare determines the value of a stock. The P/E is figured by dividing the current price of the stock by its earnings per share, usually from the past four quarters (trailing P/E ratio). The P/E can also be determined from estimates of earnings expected in the next four quarters (projected P/E ratio). It can also be calculated from the sum of earnings over the last two actual quarters and estimates of the next two quarters (there's no name for this I know of, so make one up).
Fortunately, BUYandHOLD has already done the computation for us. Jot this number down, as we'll need it for comparison shopping later. If this figure is low, it might mean the stock is undervalued. Don't base your decision to buy just on this figure, however... a few other factors will influence the P/E.
Next, we go to the stock's "news" page. This page gives us an overview of what's happening with the company. We want to know if there's pending or active litigation, or if the company has made backward or forward strides with products and services.
The most important thing for us here, outside of the actual news, is the date and frequency of the press releases or articles. If the latest news is several weeks old, this is a signal to us the company is either lax in their public relations department or they're floating along with no major achievements. Since this is part and parcel of owning my own business, I understand the importance of public relations development. A dearth of news can be death to a company.
Cora and I look for a minimum of four to ten news articles per month for a company or we move on. Although I'm basing this theory on my own bias, I still worry about investing in a company without news to report. "Bad" news doesn't turn us off as much as no news at all.
Speaking of news, Cora informs me she's hungry...so we'll see you next week, when we cover the company profile. Keep those notes handy!
Until Next Week,
Linda Goin
BUYandHOLD does not recommend any securities. The securities mentioned above are being used for informational purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy. |
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