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Stock trading tips on hot stocks to buy now, stock market strategy, picking hot stocks, picking penny stocks, and how to buy cheap stocks. From “How to Find a Home Run Stock” and “How to Pick Hot Reverse Merger Penny Stocks” and also “How the Shorts Raid Your Stock, Destroy Your Company and What to Do About It” all by John Lux.

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Presentation Transcript

Disclaimer l.jpg
Disclaimer

  • Stock speculation is very risky

  • Do not trade with more than you can afford to lose.

  • Seek professional investment advice.

  • This is not investment advice.

  • No warranties, you are on your own.


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What Makes Stocks Cheap?

  • Stocks are cheap when the underlying value of the stock is much less than the current price

    • Rubber band

  • Price is much less than value = cheap

  • NOT future value – actual, hard, present value

  • No pie in the sky


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What is VALUE?

  • Value is almost always based on two things

  • 1. Assets

  • 2. Earnings

  • The other things claimed to be value – reputation, goodwill, good management, blah, blah, have to show up in earnings to be valuable


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Earnings

  • Price earnings ratio – low P/E is good

  • You put $100,000 in a bank Certificate of Deposit (CD) for a year and get 2% interest

  • You paid 50 times earnings = the price of the CD divided by the earnings (interest)

  • How smart is this when you can easily find stocks selling at 10 times earnings or less?

  • But stocks' prices change and CDs are insured


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Earnings Yield

  • If the stock sells at $10 and makes $1.00 per share in earnings, the price-earnings ratio is ten

  • And the “earnings yield is 10%

  • In other words, all things being equal, your stock should grow 10% per year


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Valuing Assets

  • Cash – no haircut = 100%

  • Receivables – not all may be collected

  • Inventory – may be stale – how fast does it turn

  • Property, plant and equipment – what price was it bought at, how much deprecation

  • Intangibles – I usually value at zero, can be inflated


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Shareholders Equity

  • Adjust for preferred stock, warrants, etc.

  • Treasury stock – At what price does the company buy its own stock?

  • Calculate book value per share


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Cash and Working Capital

  • Calculate cash per share, working capital per share

  • Working Capital is current assets minus current liabilities

  • Calculate current ratio by dividing current assets by current liabilities – two or better is good


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Summary – Buy Cheap Stocks

  • Cheap stocks are cheap comparing price with value

  • Value is book value and earnings power

  • Do NOT use future value – only present value

  • Calculate book value per share, cash per share, working capital per share, and price earnings ratio


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Cheap Stocks Can Stay Cheap

  • Cheap stocks can stay cheap forever

  • But you want to reduce risk by buying cheap

  • Figure out which cheap stocks may go up – see my other videos or buy my books on Amazon.com

    • How to Find a Home Run Stock

    • How to Pick Hot Reverse Merger Penny Stocks


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Subscribe to my videos

  • And subscribe to my blog:

  • www. investing-performance.com


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John Lux

  • Trader, investment banker, former OTC market maker and attorney

  • Lux.Investor@ gmail.com

  • Copyright ©John Lux 2011


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