How To Evaluate Stocks For Investment

October 14, 2011 by staff 

How To Evaluate Stocks For InvestmentHow To Evaluate Stocks For Investment, When people refer to what the stock market is doing, more often than not talk about the Dow Jones Industrial Average.

 The leading index of 30 stocks of high-profile serves as an indicator of the overall health of the economy and the stock market. We have long argued that the thinking in general terms, you run the risk of getting people to paint all the common stock with the same broad brush.

When it comes to averages like the Dow Jones Industrial Average, the number you associate with it represent an average of the whole group. It is important to remember that individual companies or components may be substantially different results, and even the attributes of what we gather from his own half. Therefore, if the average (index) has done wrong, people tend to associate the bad results with all equities. However, in truth, no great differences between one company to another.

Our research confirms that generalities regarding dividends and yields are mere prejudices. Although more effort is needed to carry out a thorough investigation of statistics alone can provide, we believe that the ideas and the rewards are ultimately worth it. F.A.S.T. ™ graphics, our powerful “tool for thinking” was designed to facilitate ease of a process of further investigation. Since the Dow Jones Industrial Average contains only 30 stocks, is a relatively simple and easy to dissect this index, which is commonly used as a proxy for the “market”.

Top 10 artists of the Dow 30 since 1995

In this Part 1 of this 3 part series on the dissection of the Dow, which will be in the top 10 best performing of the 30 stocks in the Dow since 1995 (over 16) through the lens of our tool research based on fundamentals. We chose this time frame, as we shall see, for an important reason. The year 1995 was a period where most companies in the Dow were assessed in a reasonable manner, and this date was just before the “time irrational exuberance” that ended in the spring of 2000. For a more clear in the statements, the performance charts compare the performance of the company’s & SP 500.

Interpretation of the income and price correlated FAST Graphs ™

The ability to delve into specific stock valuations beyond a mere half of the market is one of the many reasons that motivated us to develop our FAST ™ graphs (Fundamentals Analyzer Software Tool ™). We wanted specific research, rather than relying on often misleading statistical references. Our F.A.S.T. Graphs ™ will allow us to assess specific sources of income from long-term investors in more than 17,000 symbols.

We use three formulas for determining the valuation: For companies growing earnings by 15% or better, the graphics use a PEG ratio (P / E equal to the revenue growth rate) for the calculation of value (PEG marked in orange ink). For companies in revenue growth of 5% or less, the graphics used Ben Graham’s formula for the value. These graphs are (GDF marked in orange ink), followed by the number representing the ratio of value of PE. For companies in revenue growth between 5% and 15%, the graphs use a modified version of the first two (marked in orange ink GDF-MTDS), again followed by the number representing the calculated value of P / E ratio .

Therefore, the orange line with triangles represent fair value for each respective company. In other words, when the black price line touches the orange line assessment revenue justified the action is in theory of value. Prices above fair value line indicate overvaluation and orange prices below fair value line orange indicate undervaluation.

Note that fair value does not necessarily imply a high yield and good. Low-income producers, even when purchased in value, all things being equal, generate a lower profitability of the fastest growing companies in the security purchased. However, and most importantly, notice how the prices and incomes in each graph are correlated over time (ie, the movement of the price trend line of the following income).

A snapshot summary of the assessment

The following table shows the 10 best performing Dow stocks in descending order of performance from calendar year 1995. For each company in the table shows the total annual return, dividend yield, the terms of current income, and a first perspective in the assessment, the normal P / E ratio that the market has historically applied to the company .

For a second perspective in the assessment, the table is a color code that represents the current rating of each company. When a population is considered very valuable, means that its price is at or near its line of value of revenue orange justified, and therefore, is orange. When a stock is considered undervalued, which means that its price is below the orange line revenue justified value, thus falling into the green zone income shade and green. If the stock price is above the value line income orange justified, it is considered overvalued, and red which implies a potential danger.

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