Sep 29, 2012

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Investing In Value Stocks

Stock_ValueThe irony in the name value stocks‘ is that they are actually stocks which are undervalued. If you have ever heard a stock broker talking about the ‘book ratio’ of a stock or the ‘price to earnings ratio,’ then he or she has probably been discussing these kinds of popular and important stocks.

What are Value Stocks?

Value stocks are currently undervalued on the stock market. This means that they return a higher-than-normal number of dividends every year, show a low book ratio, and might also exhibit a low price-to-earnings ratio. What does all of this mean? If you pick your stocks well, this means that they cost you a lot less than the returns you receive.

Defining the Language of Value Stocks

Investopedia.com writes that there are ‘fundamentals’ in a stock profile. These are dividends, company sales and so on which represent the firm’s financial picture. If the ‘book ratio’ is low, then it sells at a price lower than the closing value attributed to each share. If the ‘price-to-earnings ratio’ is low, then the stock is selling below the price for purchasing individual shares in the company. These indicators indicate that you are looking at value stocks.

How to Find These Stocks

There are various ways to locate a value stock. One is to follow the market closely for a while and find out how certain shares behave on the market. Do some research, exploring magazines such as Forbes or reading the financial pages of national broadsheets. Follow articles written by well know and knowledgeable figures in the business.

Certain web pages suggest lists of stocks which are worth considering, usually a top ‘something’ list (top three, top ten, top 200 even). Before deciding to consult one of these pages, find out who wrote it and what that person’s credentials are.

Every January, you can consult the Dow Jones statistics from the previous year to learn which stocks yielded the most dividends. These ten are the ones deemed likely to perform similarly for the coming year, so consider investing in these during the next 12 months before doing the same research and changing your portfolio the following January.

Finally, take your gut seriously. At first you might not have any instincts about investing, but with a few years of practice (or even just a few months) you will start to understand the business. As this occurs, you could feel that peculiar sensation which says that a certain company will yield value stocks for the coming year.

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