buy cheap stocks

www.investing-performance.com

Buy

Cheap

Stocks

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.

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

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

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

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

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

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

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

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

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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� www. investing-

performance.com

buy cheap stocks

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