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Best stocks to by


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Best stocks to by

  1. 1. ==== ====For More Information, Please Go to: ====What is the best stock to buy now? Finding stocks from stock screens and finding good stock thatalso works for you is great, but what if you just want a single stock and want to know the bestsingle stock to buy today?This is a good question but to answer it, this is a little bit more difficult. There are several factorsthat go into a stock price, but the bottom line is its worth currently what people are willing to pay.So the best stock to buy now would be the stock that very few people know about, but if they didtheyd be willing to pay a lot more. In otherwords, if a company has been undervalued andneglected for awhile, yet the companies fundamentals continue to grow, the only thing preventingthat stock from going up in value, is the institutional investors knowing about it. The future isuncertain, but eventually people will discover this "gem" and when they do the research, they willbuy this stock all out, or at least goes the theory.Now one trick to find good stocks are to first identify undervalued and neglected stock. Is thisgoing to find you only the #1 stock and nothing else? No, but there may be a top stock among thatgroup. How in the world are you to screen that down? Well any person can have the courage tobuy a basket of stocks and have one of them turn out, is there a way to find a stock that is a lock?Warren Buffet thinks so, he says that diversification is a hedge against ignorance. This means thatif you know everything there is to know about a company, you can invest in a company that youknow is undervalued and that you know will grow, companies that can do so will attract moreinvestor money in the future. Of course this requires you to know all about Benjamin Graham andfinding deeply undervalued companies. However, there is one important thing that you may notice.From gurufocus...He introduced the first formula at age 79 and concluded from his results that one would haveperformed quite well from 1961-1976 by buying stocks with the lowest values of these threecriteria:A low multiple (e.g.,10) of the preceding years earnings;A price equal to half the previous market high ("to indicate that there has been considerableshrinkage");Net Asset Value. (I presume this is the lowest price relative to book value)In his next interview published in Medical Economics, September 20, 1976 titled "The SimplestWay to Select Bargain Stocks" Graham, then 82, proposed a simpler, more refined formula thatconsisted of:PE Ratio of 7x-10x or less (Based on 2x current triple A bond rates)*;Equity/Asset Ration of .5 or more (e.g. Debt/Equity >1).
  2. 2. * Calculate the maximum PE by dividing (2 x triple A bond rate) by 100. Example: 7% triple A bondwould equate to PE of 7x (100/ (2×7)). If rates are below 5%, then use 10x PE max. Grahamsaid always buy at PE 7x or less regardless of triple A rates.So hows this compare to the "magic formula? Again gurufocus adds this table.Formula ComparisonGrahamGreenblatts Magic FormulaScreen Criteria7x-10x PE or less andequity/assets > .5Highest Combo of EYand ROICHolding period2 years or 50% gain, whichever came first1 year (sale losers 1 day prior and winners 1 day after)P/ETTMTTM# of stocks3030Minimum Time5 years3-5 yearsTest period50 years(1926-1976)17 years(1988-2004)
  3. 3. Test returns2x Dow2x-2.5x S&PSo is that the key to finding the best stock to buy now? No, that will result in too many picks. StockGuru and one of the worlds wealthiest men Monish pabrai says this about not Ben grahams butGreenblatts Magic formula"[When looking for stock] The Magic Formula is a very good place to go hunting for fifty-cent dollarbills. We could keep it very simple, only analyzing Magic Formula stocks day in and day out, andbecome quite wealthy over time. I strongly recommend this approach. It is simple. Youre shootingfish in a small barrel, and the results are likely to be vastly superior to the indexes."so there are many posts about this. If you want to get your magic formula stocks head on over toHowever, if you want to learn more about Ben Graham he had other theories such as net assetvalue.Repetition is how we learn so I am going to repeat myself. According to my previous article titledthe "best stocks to buy now" simply knowing which stocks are best arent enough:If you have a 55% chance of losing everything you have and a 45% chance of winning 5 timeswhat you risk, that mathematically has a highly expected outcome of winning and a deal like thatmay even be among the best stock to buy now (or best stocks), but if you do in fact take on therisk of everything you have, you will lose in the long run if you take these risks. This is why riskmanagement is important before you determine the best stocks to buy.Okay, so I am not going to do the work for you, because I believe that you learn by doing,however, I am going to give you a ste by step process that should help you identify 1 single qualitystock. I believe that in this world of free stock advice, its easy to get wrapped up in informationoverload and struggle to identify the one single stock worth owning right now.So how do you find the best stock to buy now?1.) To start with screen stocks by using for the Magic Formula. You have to log in and create anaccount before you can use the screener but it is free to do so.2.) Using that list come up with the top 100 that are above a market cap of at least 50. The smallmarket cap stocks require different money management strategies as you need to have moremoney on the side and/or holding it for a longer period of time so the volitility doesnt effect you ina bad way.3.) From that list, take the top 20% of stocks of ROIC (return on investment capital) in this case 20stocks
  4. 4. 4.) From the list of 20, enter the ticker and figure out the top 20% or in this case the top 4equity/asset ratio.5.) From this list of 4, buy the stock with the lowest P/E of the previous earnings. If the P/E is notunder 10, you must screen again, this time starting with 200, then take the top 40 stocks with thehighest ROIC, and then the top 8 and from those 8 you should be able to find 1 or 2.Of course as I hinted at before, I believe that neglected stock are among the best stock to buynow, or at least the best stocks to buy as of October 2009. This may change if you have a shortertime perspective. I consider this trading more so than investing, and if you are trading, you maylike breakouts from undiscovered companies that are surging on huge colume. I prefer to do myresearch once or twice a year, find a handful of good stocks, and then not have to spend any timethinking about it, but thats just me.Now I dont just toss away the best 4, because just because 1 stock appears better, doesnt meanthe others arent goods stocks as well. I prefer to do a little bit more in depth research on themanagement of the company, and assets, and balance sheets, and so on. The longer you intendon holding it, the more that you should do additional research. Perhaps you continue this processevery month throughout the year until you find one that meets this manual screen, and from that,you have to find the stocks that meet your own personal requirements.So is it possible to find the best stock to buy now? Its certainly not guaranteed, and right now itsonly an opinion on a method to find the best, not an actual fact. You may have other people thatcompletely disagree with that statement. The only thing that is certain is uncertainty. The onlything that you can be confident about is that people will not always be confident. History hasshown us that the factors contained in this strategy will help identify valuable stocks. However timewill tell whether or not this is the best stock to buy now, or if it should be avoided.You can learn how to find the best stock to buy, and other useful posts at the best stocks blog. Ifyouve ever wanted to find a list of some of the best stocks to buy now, check it out.Article Source: ====For More Information, Please Go to:
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