http://profitabletradingtips.com/profitable-trading-tips/what-is-a-value-stock What Is a Value Stock? One of many quotes from famed investor Warren Buffett is that the first rule of investing is not to lose money and the second rule is not to forget the first. This quote brings to mind value stocks. What is a value stock? investopedia defines value stock. a value stock is a stock that tends to trade at a lower price relative to its fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio. The point of successful long term investing is to focus on value stocks that have long term stable growth potential but are currently undervalued by the market. These stocks are not as exciting as some growth stocks but they are more likely to allow you to follow Buffets rules of investing and not lose money. Boring Value Stocks Value stocks are not cheap. They are cheap compared to their intrinsic stock value. U.S. News writes about so-called boring stocks. slow and steady wins the day. “it’s human psychology to want to be part of the next big thing,” says dave mazza, state street global advisors’ head of research for spdr etfs and ssga funds in boston. “often times, a more steady investment approach may be more lucrative.”

1. By www.ProfitableTradingTips.com

2. One of many quotes from famed
investor Warren Buffett is that the
first rule of investing is not to lose
money and the second rule is not
to forget the first.

3. This quote brings to mind value
stocks.

4. Before We Continue…
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5. What is a value
stock? investopedia defines value
stock.

6. a value stock is a stock that tends
to trade at a lower price relative to
its fundamentals (i.e. dividends,
earnings, sales, etc.) and thus
considered undervalued by a value
investor.

7. common characteristics of such
stocks include a high dividend
yield, low price-to-book ratio
and/or low price-to-earnings
ratio.

8. The point of successful long term
investing is to focus on value
stocks that have long term stable
growth potential but are currently
undervalued by the market.

9. These stocks are not as exciting
as some growth stocks but they
are more likely to allow you to
follow Buffets rules of investing
and not lose money.

10. Boring Value Stocks

11. Value stocks are not cheap. They
are cheap compared to their
intrinsic stock value. U.S. News
writes about so-called boring
stocks.

12. slow and steady wins the day. “it’s
human psychology to want to be
part of the next big thing,” says
dave mazza, state street global
advisors’ head of research for
spdr etfs and ssga funds in
boston.

13. “often times, a more steady
investment approach may be more
lucrative.”

14. take gaming company zynga
(ticker: znga), which soared to a
peak of nearly $15 in early 2012
before plummeting to less than
$3.

15. sure, its games – farmville, words
with friends and others – may be
fun to play, but the thrill of the
investment quickly became a way
to lose money.

16. it’s not a new story, as anyone
who remembers the dot-com bust
will tell you.

17. Such companies include
mcdonald’s corp. (mcd) and
procter & gamble co. (pg) – solid
companies that are “dividend
aristocrats” stocks traded on the
standard & poor’s 500 index and
have increased dividend payouts
for 20 consecutive years.

18. They suggest AT&T, CAT, CVX,
MMM and IBM as examples.

19. An alternative is the US Dividend
Aristocrats UCITS exchange-
traded fund (SDY) that is
comprised of these sorts of solid
dividend stocks.

20. Key is not that these companies
pay the highest dividends but they
have histories over decades of
routinely paying and increasing
their dividends.

21. Intrinsic Stock Value

22. Intrinsic stock value is the value of
a company or stock based on
fundamental analysis compared to
its market value.

23. When the fundamental value of a
stock is higher than it market
value the stock is a buy and vice
versa.

24. What is important here is the
accurate assessment of long term
growth and returns which are the
basis of assessing intrinsic stock
value.

25. Our sister site, profitable investing
tips explains calculating intrinsic
stock value.

26. benjamin graham presented
investors with a formula for
calculating intrinsic stock value in
1962 and modified it in 1974.

27. the 1974 version considers the
following:

28.  earnings per share,
eps, for the
preceding twelve
months
 a constant of 8.5
representing an
expected price to
earnings ratio, p/e
ratio, for a
company that is
not growing
an estimate of long
term growth, five
years = g
 a constant of 4.4
which was the
average yield of
high grade
corporate bonds in
the early 1960
decade
 the current yield of
aaa corporate
bonds = y
 where v = intrinsic
value

29. the formula is as follows:
v = (eps x (8.5 + 2g) x 4.4)/y

30. the way the investors were
encouraged to use intrinsic value
was to derive what is referred to
as a relative graham value, rgv.

31. this is to divide the calculated
intrinsic value of the stock by its
current price.

32. if the result, the rgv, is less than
one the stock is overvalued and a
bad investment and if the ratio is
above one it is undervalued and
may be a good investment.

33. A measure of how well this
approach works is the net wealth
of Warren Buffett who was a
protégé of Benjamin Graham.