Buy cheap stocks


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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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Buy cheap stocks

  1. 1. Buy Cheap Stocks
  2. 2. DisclaimerStock speculation is very riskyDo not trade with more than you can afford tolose.Seek professional investment advice.This is not investment advice.No warranties, you are on your own.
  3. 3. What Makes Stocks Cheap?Stocks are cheap when the underlying value ofthe stock is much less than the current price – Rubber band Price is much less than value = cheapNOT future value – actual, hard, present valueNo pie in the sky
  4. 4. What is VALUE?Value is almost always based on two things1. Assets2. EarningsThe other things claimed to be value – reputation,goodwill, good management, blah, blah, have toshow up in earnings to be valuable
  5. 5. EarningsPrice earnings ratio – low P/E is goodYou put $100,000 in a bank Certificate of Deposit(CD) for a year and get 2% interestYou paid 50 times earnings = the price of the CDdivided by the earnings (interest)How smart is this when you can easily find stocksselling at 10 times earnings or less?But stocks prices change and CDs are insured
  6. 6. Earnings YieldIf the stock sells at $10 and makes $1.00 pershare in earnings, the price-earnings ratio is tenAnd the “earnings yield is 10%In other words, all things being equal, your stockshould grow 10% per year
  7. 7. Valuing AssetsCash – no haircut = 100%Receivables – not all may be collectedInventory – may be stale – how fast does it turnProperty, plant and equipment – what price wasit bought at, how much deprecationIntangibles – I usually value at zero, can beinflated
  8. 8. Shareholders EquityAdjust for preferred stock, warrants, etc.Treasury stock – At what price does the companybuy its own stock?Calculate book value per share
  9. 9. Cash and Working CapitalCalculate cash per share, working capital pershareWorking Capital is current assets minus currentliabilitiesCalculate current ratio by dividing current assetsby current liabilities – two or better is good
  10. 10. Summary – Buy Cheap StocksCheap stocks are cheap comparing price withvalueValue is book value and earnings powerDo NOT use future value – only present valueCalculate book value per share, cash per share,working capital per share, and price earningsratio
  11. 11. Cheap Stocks Can Stay CheapCheap stocks can stay cheap foreverBut you want to reduce risk by buying cheapFigure out which cheap stocks may go up – seemy other videos or buy my books on – How to Find a Home Run Stock – How to Pick Hot Reverse Merger Penny Stocks
  12. 12. Subscribe to my videosAnd subscribe to my blog:www.
  13. 13. John LuxTrader, investment banker,former OTC market makerand attorneyLux.Investor@ Copyright ©John Lux 2011