Value stock investing is an investment strategy that looks for stocks which are undervalued when compared to a value you calculate with various fundamental analysis indicators. While the description may sound a little complicated, you will see that with a little practice, fundamental analysis for value stock investing is not as difficult as it sounds, in fact, with readily available online tools, finding good value stocks is easy.
First a little history – value stock investing was popularized by Benjamin Graham and David Dodd, and their 1934 book, Security Analysis, remains popular to this day – many bookstores still stock this one on their shelves. Famous investors like Warren Buffet and Mario Gabelli have made fortunes using the value stock investing strategy to find under priced stocks to buy.
Value stock investors look for stocks with strong fundamental characteristics, such as business revenue growth, cash flow, earnings growth, book value, and cash flow. All of these items, and more, are found on company’s quarterly and annual reports. The key is finding stocks that sell at a bargain price vs. their underlying quality based on these fundamental metrics. Value stock investors constantly seek out companies that are currently incorrectly valued (i.e. undervalued) by the stock market and therefore have the potential to increase in share price when the market corrects its error in valuation. Some good value stocks pay higher dividend yields due to their lower price relative to the dividend that they pay (there are even monthly dividend stocks that fall inot this category).
Since value stocks are under priced, this means that they are out of favor with the market, which makes value stock investors contrarians by definition. Buying value stocks can, at times, be tough psychologically, because in many cases, you are buying companies or industries that are receiving a lot of negative press. Right now there are companies and industries that you can read about in the news, where nearly every article you read in the business press, or every story about them you watch on television, is very negative. As I write this article in Spring, 2009, there is a recession in full swing, with banks, housing stocks, and REITs all being whacked the most by the business media. These are the types of areas where value stock investors are prospecting for good companies with good fundamantal characteristics, that are having their stock prices dragged down with the rest of the companies in their industry. A good tool for determining if a stock is undervalued is to look at it’s earnings yield.
With the tools, resources, and articles posted on this website, value stock investing will become another tool for you to use in your successful online investing activities.
Technorati Tags: Annual Reports, Array, Bargain Price, Benjamin Graham, Bookstores, Business Press, Business Revenue, Cash Flow, David Dodd, Dividend Yields, Earnings Growth, Fortunes, Fundamental Analysis, Fundamental Characteristics, Investing Stock, Investing Strategy, Investment Strategy, Investors, Mario Gabelli, Metrics, Monthly Dividend Stocks, Online Tools, Reces, Security Analysis, Share Price, Shelves, Stock Investing, Stock Investment, Stock Investors, Stock Market, Stock Value, Stocks, Value Investing, Value Investment, Value Stock, Value Stocks, Warren Buffet