Many people purchase stocks that have low P/E ratios. The feeling is that the stock is under priced. A P/E ratio is price/earnings ratio and is calculated on a per share basis. For example a stock at $20 which has $1 in earnings would have a P/E ratio of 20/1 or 20. Depending on the industry class ratios lower than 15 are often considered inexpensive. My belief is that P/E ratios can be very misleading and my research suggests that if you try to buy low P/E ratio stocks then you miss most of the winners.
A P/E ratio can be low because of low stock price or high earnings. If the price is low then one should assume it is low for a reason since the stock market is forward looking. A stock may have a P/E ratio of 10 today but if the next earnings come out at only half of the last earnings that immediately adjusts the ratio up to 20 from 10. Suddenly the stock looks expensive and if the earnings get worse the P/E ratio would be much higher.
A stock with future earnings potential usually gets bid up in price even before the great earnings come through making the P/E ratio appear very high. A stock might appear expensive with a P/E ratio of 50 until the day it announces great earnings, then suddenly the P/E ratio drops to some low level because of the high denominator (high earnings). Of course the price then starts climbing in recognition of the great earnings and up goes the P/E ratio again.
My suggestion is ignore P/E ratios.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
WYNN - $107.00
GOOG – $612.00
IDCC – $33.57
BMA – $49.79
Friday, October 29, 2010
Friday, October 22, 2010
Darn That Market – BIDU ROVI KVHI HMIN
A friend said to me this week “Darn that market, too late to buy now”. My response was “I wish I knew”. The fact of the matter is people get scared to enter the market when stocks are low because of all the bad news around. Then of course they won’t buy the market after it has gone up because they say prices are too high and rightly or wrongly assume we have missed the rise. My response is as allows we don’t know when we are at bottom, middle or top. You have to look at it from a money management point of view.
The last few weeks I have been talking extensively about money management because when you are heavily invested as you should be by now then the order of the day should be money management and risk control. Even now it’s not too late to buy equities I don’t know where the top is. As I have said many times before risk management is key and I have outlined the techniques to protect your wealth and limit your risk. If you have ignored all my advice and not bought when we had the follow through day at the start of September it is still ok to invest. Find those companies breaking out on volume and start buying slowly. Build up your positions as they increase in value and sell out and step to the sidelines if indeed the market is at a top.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
BIDU - $107.77
ROVI – $50.47
KVHI – $15.97
HMIN - $51.27
The last few weeks I have been talking extensively about money management because when you are heavily invested as you should be by now then the order of the day should be money management and risk control. Even now it’s not too late to buy equities I don’t know where the top is. As I have said many times before risk management is key and I have outlined the techniques to protect your wealth and limit your risk. If you have ignored all my advice and not bought when we had the follow through day at the start of September it is still ok to invest. Find those companies breaking out on volume and start buying slowly. Build up your positions as they increase in value and sell out and step to the sidelines if indeed the market is at a top.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
BIDU - $107.77
ROVI – $50.47
KVHI – $15.97
HMIN - $51.27
Sunday, October 17, 2010
Earnings Season – HLF TZOO MASI TEO
The stock market continues to do well. We have had some consolidation this last couple of weeks and stock prices have held firm. Looking at indexes like the NASDAQ a case can even be made that we are now climbing out of the recent consolidation. During this consolidation there has been some sector rotation in particular the cloud computing stocks got hit quite badly and continue to be weak, these stocks are no longer leaders. However other stocks have come to the front and are helping move the major stock market indexes higher. Indexes such as the DOW are lagging a little but this index is very focused and has been impacted by the turmoil in financial stocks. The recent news from the government about stalling housing foreclosures sounds good for housing short term. However in the long run this will prolong the housing crisis since we cannot get excess inventory onto the market and sold off. This has impacted the financial stocks recently which also impacted some of the financial heavily laden indexes.
All things considered we are not seeing a general sell off so the plan should be to remain invested and look for positions in new companies, add to existing positions and tighten up on sell stops where a company looks to be slipping. In particular be careful during this earnings season which is about to start. As companies announce better or worse numbers, this can very easily change the playing field for better or worse.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
HLF - $65.89
TZOO - $27.18
MASI - $28.94
TEO - $22.72
All things considered we are not seeing a general sell off so the plan should be to remain invested and look for positions in new companies, add to existing positions and tighten up on sell stops where a company looks to be slipping. In particular be careful during this earnings season which is about to start. As companies announce better or worse numbers, this can very easily change the playing field for better or worse.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
HLF - $65.89
TZOO - $27.18
MASI - $28.94
TEO - $22.72
Saturday, October 9, 2010
Risk Control Yet Again – LULU GEOY EXLS PANL
By now I think you are realizing that risk control by way of money management is absolute key to successful investing. I wish to talk about risk control yet again this week. Last time we spoke about how you can develop a broad base of stocks with very little money at risk. Each one of those purchases is like planting seeds in your garden. Some seeds will die (stopped out of stocks at a small loss) and a few will grow into big acorn trees (stock winners). We need to discuss how to take advantage of those companies with massive price appreciation. Since we only made a small pilot investment in each of those “seeds” (as discussed in the past) we will make very little money from them even with tremendous price growth so read on.
As well as broadening out our base of stocks we need to be adding to the companies that are going to start moving up. Companies move up in spurts then consolidate only to break out of new consolidation bases and move up again. A stock will move up 10, 20 or 30% perhaps then you will see some profit taking followed by some sideways movement called “basing” before it breaks out on volume and starts moving up again. Imagine a stock is owned at $20 and starts moving up to perhaps $21. Now is the time to move the sell stop up to break even on the $20 purchase and buy more stock at $21. As it moves through $22 you buy more raising the sell stop on the $21 to $21. Once the $22 purchase starts moving up you can raise that protective sell stop up to $22 as you prepare to buy more. You should have many purchases on the way up with many sell stops in place at your purchase price except for the last one you purchased which you can only lose a little money on if the stock starts falling back. One point I would like to add here is only buy more of a stock if you see the upward movements are happening on increased volume.
At some point the expected sell off will materialize and a few of your recent purchases will get sold at “BREAK EVEN”. It is important to note you are NOT losing money since you are selling at the price you paid for that stock (remember you raised the stop on all purchases to sell at break even). A good company will stop selling off at some point as the sellers dry up and the stock will start its basing or consolidation before starting another move up. Once it breaks out again on volume you can continue your purchase program.
As your holding in a company becomes much larger from continuously adding to the position you can consider raising the quantity of stock you buy. Imagine buying one units of stock 10 times so you then own 10 stocks. There is not much point in continuing to add one more unit each time, why not change it to 2, 3 or even 4 units. You can see that the more stock you own then the more stock you can buy and still not increase the risk since you are using “house” money from all the gains you have made previously.
Ultimately a great stock will start falling on heavy volume and it may be time to sell. If you see a high volume sell off then sell half your holding. If it continues sell the other half.
Finally if you have a portfolio of stocks that you are adding to (the garden) then consider the following. You have strong stocks and weak stocks so start selling a little of the not so strong stocks and add to the stocks that are doing very well. If those super stocks go into a consolidation phase then sell some of that stock and add it to the stocks that are still moving up.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
LULU - $47.42
GEOY - $42.14
EXLS - $19.98
PANL - $25.60
As well as broadening out our base of stocks we need to be adding to the companies that are going to start moving up. Companies move up in spurts then consolidate only to break out of new consolidation bases and move up again. A stock will move up 10, 20 or 30% perhaps then you will see some profit taking followed by some sideways movement called “basing” before it breaks out on volume and starts moving up again. Imagine a stock is owned at $20 and starts moving up to perhaps $21. Now is the time to move the sell stop up to break even on the $20 purchase and buy more stock at $21. As it moves through $22 you buy more raising the sell stop on the $21 to $21. Once the $22 purchase starts moving up you can raise that protective sell stop up to $22 as you prepare to buy more. You should have many purchases on the way up with many sell stops in place at your purchase price except for the last one you purchased which you can only lose a little money on if the stock starts falling back. One point I would like to add here is only buy more of a stock if you see the upward movements are happening on increased volume.
At some point the expected sell off will materialize and a few of your recent purchases will get sold at “BREAK EVEN”. It is important to note you are NOT losing money since you are selling at the price you paid for that stock (remember you raised the stop on all purchases to sell at break even). A good company will stop selling off at some point as the sellers dry up and the stock will start its basing or consolidation before starting another move up. Once it breaks out again on volume you can continue your purchase program.
As your holding in a company becomes much larger from continuously adding to the position you can consider raising the quantity of stock you buy. Imagine buying one units of stock 10 times so you then own 10 stocks. There is not much point in continuing to add one more unit each time, why not change it to 2, 3 or even 4 units. You can see that the more stock you own then the more stock you can buy and still not increase the risk since you are using “house” money from all the gains you have made previously.
Ultimately a great stock will start falling on heavy volume and it may be time to sell. If you see a high volume sell off then sell half your holding. If it continues sell the other half.
Finally if you have a portfolio of stocks that you are adding to (the garden) then consider the following. You have strong stocks and weak stocks so start selling a little of the not so strong stocks and add to the stocks that are doing very well. If those super stocks go into a consolidation phase then sell some of that stock and add it to the stocks that are still moving up.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
LULU - $47.42
GEOY - $42.14
EXLS - $19.98
PANL - $25.60
Saturday, October 2, 2010
Risk Control Again – FNSR ACOM OCLR NXTM
The importance of risk control cannot be emphasized enough. Risk control is even more important when markets have been climbing as they are now. It is easy to get excited and take on too much risk. The market has been moving sideways this last week which is very good news, we need to consolidate recent gains. The interesting move comes next as we discover whether we get a healthy pull back on low volume or a big sell off on heavy volume spelling the end. Notice I don’t claim to know the future, forecasts are useless, go with the flow. If markets continue up then buy more and if they fall back tighten stops to lock in some profit. The graph below shows the recent consolidation courtesy of http://www.bigcharts.com/
Now lets talk some more about risk control by way of an example. I have spoken many times how you broaden your base by buying new stock positions in new companies and also adding to those bases by adding onto positions that are going up. I wish to focus this week on broadening the base in the following example on risk control. Starting fresh after a follow through day you may buy one new stock position with perhaps a 10% sell stop in case the follow through day fails. Let’s assume you are successful and that stock climbs 30%. You can afford the risk of taking THREE new positions each with a 10% sell stop. If every one of those positions are stopped out you sell the original purchase with the 30% gain and end up break even. In all likelihood those new positions will also go up since you have been buying break outs on high volume.
Now note the beauty of the process. If those three new positions have gone up just a little, enough to adjust the sell stops to break even then you have that original 30% gain to buy another three positions. Imagine those three new positions also going up. I know this is hypothetical but let’s say you have 30% profit in each of those new positions. Then you have four stocks each allowing three new purchases with a 10% stop, that’s TWELVE new positions !!!! Imagine how those twelve new positions can grow your base if they all go up. Yes of course this is purely hypothetical but I just wanted to show you what is possible with ZERO risk other than the initial 10% risk.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
FNSR - $19.06
ACOM – $22.99
OCLR – $16.60
NXTM - $19.72
Now lets talk some more about risk control by way of an example. I have spoken many times how you broaden your base by buying new stock positions in new companies and also adding to those bases by adding onto positions that are going up. I wish to focus this week on broadening the base in the following example on risk control. Starting fresh after a follow through day you may buy one new stock position with perhaps a 10% sell stop in case the follow through day fails. Let’s assume you are successful and that stock climbs 30%. You can afford the risk of taking THREE new positions each with a 10% sell stop. If every one of those positions are stopped out you sell the original purchase with the 30% gain and end up break even. In all likelihood those new positions will also go up since you have been buying break outs on high volume.
Now note the beauty of the process. If those three new positions have gone up just a little, enough to adjust the sell stops to break even then you have that original 30% gain to buy another three positions. Imagine those three new positions also going up. I know this is hypothetical but let’s say you have 30% profit in each of those new positions. Then you have four stocks each allowing three new purchases with a 10% stop, that’s TWELVE new positions !!!! Imagine how those twelve new positions can grow your base if they all go up. Yes of course this is purely hypothetical but I just wanted to show you what is possible with ZERO risk other than the initial 10% risk.
Here are a few more stocks performing well and looking ready to move higher if the stock market holds up. Make sure as always that earnings are not imminent for any new purchases. Remember this blog site is not a newsletter that promotes stock tips or penny stocks. Rather the idea is to teach stock selection with low risk advice.
FNSR - $19.06
ACOM – $22.99
OCLR – $16.60
NXTM - $19.72
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