All Entries in the "Stock Market Investing Tips 101: The Series" Category

The Legendary Stocks to Watch Worksheet Revisited

Time for me to break out my Legendary Stocks to Watch Worksheet.  The market’s incredibly low, and there’s still many sound companies out there. Time to get in while the gettin’s good.

To justify playing the market at all - aka rolling the dice - I’ve stopped drinking coffee at work.  That two dollars a day goes into a can.  When I have $50 or $100, I allow myself to spend it on whatever I choose.  One of the things I buy sometimes is stocks.

“Hey, Big Spender,” you may be thinking.

This is a lot of money in my book.  That’s because I’m not the gambling type.  I’m a tightwad when it comes to stock investing.  I don’t like to lose.  I haven’t bought shares lately. The market is nuts lately, and I haven’t taken the time to do the proper research.

But with dips like last week’s plunge, there has to be a lot of good buys out there.

My definition of a good buy:  value companies with sound financials and a high dividend.

Here’s my original post describing my version of the worksheet - adapted from Jason Kelly’s version.  If you’d like a copy, please leave a comment with your request on this post, or e-mail me at lisa dot spinelli at comcast dot net.  I’ve already sent out about 25 copies.

In the first 7 articles of this series, I covered basic definitions of investing, and free internet resources for stock analysis. If any of the information in this post feels unfamiliar to you, I encourage you to review these previous entries.

In this article I present a classic stock analysis technique. I outline Jason Kelly’s Stocks to Watch Worksheet defined in Chapter Seven of his book The Neatest Little Guide to Stock Market Investing. This is how Kelly describes this sheet:

“ This is the legendary system for picking winners, thoroughly explained in the book and revered around the world. You will not find analysis this complete in such a small space anywhere else. Entire investment clubs have sprung up around this remarkable approach. A must-have!”

You can download a free PDF of this worksheet from Kelly’s website. I have created my own version on Microsoft Excel. I prefer excel because I can manipulate the data more easily. On my version, I have also added Kelly’s definitions, required/ideal criteria, and “where to find it” information for each statistic. Until I feel comfortable with these many terms, I want to have the explanations right in front of me. If you would like a copy,e-mail me [or leave a comment on this post].

About the Stocks to Watch Worksheet
Purpose: To allow you to look at key evaluative statistics of each stock on one page. Here you can easily compare each company’s strengths and weaknesses before determining the best stocks for your portfolio.

Lay-out: There are thirty two columns for entering the information you’ll collect for each stock. Each column is put into one of five categories: Basic Information, Company Health, Past Performance, Projected Performance, and Stock Ratios. Here’s how they’re broken up.

Basic Information:
Company Name, Symbol, and Phone
Current Price
52 wk Hi/lo
Market Cap
Daily Dollar Volume
Sales

Company Health:
Net Profit Margin
Cash
Total Debt
Sales per Share
Cash Flow per Share
Earnings per Share (EPS)
Dividend Yield (dollar/%)
Return on Equity (ROE)
Insider Buys
Insider Ownership
Stock Buyback

Past Performance:
EPS Rank
Relative Price Strength Rank
5-Year Sales and Earnings Gain
5-Year Price Appreciation

Projected Performance:
Projected Sales and Earnings in the Next 5 Years
Projected Stock Hi/Low
Valueline Timeliness/Safety
S&P Stars/Fair Value

Stock Ratios:
Current Price-to-Earnings (PE)
Average Price-to-Earnings
Price-to-Sale
Price-to-Book
Current Ratio
Quick Ratio
Max and Min

The goal is to have twenty potential stocks to purchase on your list. In my Stocks 101 #9 entry, I’ll discuss the stocks I’ve found so far. I’ll also discuss the ease/difficulties I have finding the information.

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Stock Market Investing Tips 101: #8- A Legendary Stock Watch Worksheet

In the first 7 articles of this series, I covered basic definitions of investing, and free internet resources for stock analysis. If any of the information in this post feels unfamiliar to you, I encourage you to review these previous entries.

In this article I present a classic stock analysis technique. I outline Jason Kelly’s Stocks to Watch Worksheet defined in Chapter Seven of his book The Neatest Little Guide to Stock Market Investing. This is how Kelly describes this sheet:

“ This is the legendary system for picking winners, thoroughly explained in the book and revered around the world. You will not find analysis this complete in such a small space anywhere else. Entire investment clubs have sprung up around this remarkable approach. A must-have!”

You can download a free PDF of this worksheet from Kelly’s website. I have created my own version on Microsoft Excel. I prefer excel because I can manipulate the data more easily. On my version, I have also added Kelly’s definitions, required/ideal criteria, and “where to find it” information for each statistic. Until I feel comfortable with these many terms, I want to have the explanations right in front of me. If you would like a copy, e-mail me at lisa.spinelli@comcast.net.

About the Stocks to Watch Worksheet
Purpose: To allow you to look at key evaluative statistics of each stock on one page. Here you can easily compare each company’s strengths and weaknesses before determining the best stocks for your portfolio.

Lay-out: There are thirty two columns for entering the information you’ll collect for each stock. Each column is put into one of five categories: Basic Information, Company Health, Past Performance, Projected Performance, and Stock Ratios. Here’s how they’re broken up.

Basic Information:
Company Name, Symbol, and Phone
Current Price
52 wk Hi/lo
Market Cap
Daily Dollar Volume
Sales

Company Health:
Net Profit Margin
Cash
Total Debt
Sales per Share
Cash Flow per Share
Earnings per Share (EPS)
Dividend Yield (dollar/%)
Return on Equity (ROE)
Insider Buys
Insider Ownership
Stock Buyback

Past Performance:
EPS Rank
Relative Price Strength Rank
5-Year Sales and Earnings Gain
5-Year Price Appreciation

Projected Performance:
Projected Sales and Earnings in the Next 5 Years
Projected Stock Hi/Low
Valueline Timeliness/Safety
S&P Stars/Fair Value

Stock Ratios:
Current Price-to-Earnings (PE)
Average Price-to-Earnings
Price-to-Sale
Price-to-Book
Current Ratio
Quick Ratio
Max and Min

The goal is to have twenty potential stocks to purchase on your list. In my Stocks 101 #9 entry, I’ll discuss the stocks I’ve found so far. I’ll also discuss the ease/difficulties I have finding the information.

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Stock Market Investing Tips 101- # 7: Free Research Tools for Analyzing Stocks

In previous 101 posts, we have begun to familiarize ourselves with some of the key terms of stock analysis.

Our next goal is to become acquainted with on-line research tools. Because this is a frugal blog, I’m listing only completely free web sites here. Chapter 5 of Jason Kelly’s Neatest Little Guide to Stock Market Investing provides more extensive options of top notch publications of all types/fees.

Here’s the list:

yahoofinance.com- For the level of detail provided, I find this site the most easy to follow. Here’s an example of the stock research page for the only stock in my portfolio right now, Annaly Capital Management (NLY). I like the way the side-bar nicely organizes various statistics into relevant categories. Many of the sites do this.

money.cnn.com - I didn’t find anything on this site that I couldn’t also get from Yahoo Finance. However, it is completely free as well, and you may prefer its format over yahoo. businessweek.com/investing- A bit dry for me, but another good option. finance.google.com- is great for getting a quick glimpse of the just the most important statistics on your stocks. Google has lots of cool stock watch gadgets for your feed page. Marketwatch.com- Good detail, interesting stories. Also provides Bigcharts.com, a free chart analysis site. “Utilizing the Charts” will be part of the Stock Investing Tips 200 Series.

The Motley Fool.com- Adds insiteful and often entertaining commentary to the mix.

Your homework: play around on some of these sites. Get comfortable with a few of them. In 101 post #8, I’ll outline Jason Kelly’s 20 key statistics for analyzing a good stock.

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Stock Market Investing Tips 101: # 6- What Makes a Good Stock

As I continue my studies about stock market investing, I wanted to share with you some common indicators analysts use when evaluating stocks. These three terms were originally introduced in lessons #4 and #5.

A high EPS is good. As you recall, earnings per share is a company’s total actual earnings in the last year (profits minus expenses), divided by the total number of outstanding shares.

What this tells you: How much each share is actually worth, as opposed to the market value, or what you would buy it for on the stock exchange.

Look for EPS values in the 1-5 range. Even higher is better, but unusual. If it is lower, it does not necessarily mean it is a bad stock. If other indicators look good, dig deeper and try to understand why it is lower.

A low P/E is good. P/E is the price of a stock divided by its EPS.

What this tells you: This is where you compare what you are paying for the stock vs. its actual value. Below 20 is really good. Below 10 is WOW! good. If it is higher, again, understand why.

Take a look at the P/S Ratio. The Price/Sales ratio, or PSR, looks at the total market value, divided by the last four quarters of sales revenue. Another way to determine this is by taking the company’s price per share divided by its sales per share.

What this tells you: to paraphrase Jason Kelly, historically, P/S ratio has been a more reliable predictor of stock performance. This is because company’s can calculate their total earnings in different ways, sometimes hiding expenses to inflate the EPS. Total sales is total sales.

And finally,

Look at historical trends versus future analyst’s predictions. For example, this is done for you with P/E. The standard P/E reported is the trailing P/E. Trailing P/E is calculated based on the last twelve months of performance. Compare that to the forward P/E. The f P/E is calculated based on analyst’s future predictions for the next twelve months.

What this tells you. The direction a stock is going.

Understand what these terms mean. Look at their historical and predicted values. This is a valuable first step in determining whether or not a stock is worth evaluating further.

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Stock Market Investing Tips 101: The Series. # 5: "What’d They Say?" Continued

Have all you wanna be investors like me been hanging in there on this series? (If you’re reading this for the first time, you may want to go back and review Tips 1-4). But for now, more of our short version “must know” glossary of terms.

To summarize what we have covered so far, here are the terms discussed in previous posts of this series:

• Value Investing

• Growth Investing

• Fundamental Analysis

• Technical Analysis

• EPS

• P/E

• Dividends

• ETFs

Terms for this week

Market Cap (or market capitalization)- The market value of a company on the stock market. e.g. Current share price times the number of shares in issue. This is as opposed to the actual value of the company. When evaluating stocks, one of the things you want to look for is a low market to actual ratio.

Cash flow- The money that flows into the business, minus the money that flows out of the business. You want it to be positive. The bigger the better.

Cash flow/share- The company’s cash flow divided by the number of outstanding shares

Earnings momentum/Earnings acceleration- when a stocks earnings increase quarter after quarter. This is, of course a good thing. Growth investors demand this.

Price/Book Ratio- the value of the company in its entirety were it to be liquidated right now.

Price/sales ratio- is calculated by dividing the company’s market cap by the company’s sales revenue in the most recent fiscal year (or the most recent four fiscal quarters); or, equivalently, divide the per-share stock price by the per-share revenue. Sorry, I could not find an equation picture for this one.

Current Ratio- Divide current assets by current liabilities. This is a measure of a company’s ability to pay it’s bills over the next twelve months. You want it to be a minimum of 2:1, according to Jason Kelly. You definitely don’t want it to be less than 1. Quick ratio is similar to the current ratio, but more accurate in that it is a measure of actual available cash divided by current liabilities. This is a measure of a company’s ability to survive bad periods.

Net Profit Margin, Profit Margin or Net Profit Ratio- An indicator of a company’s pricing policies and its ability to control costs. Differences in competitive strategy and product mix cause profit margin to vary among different companies.

Once we get all the pertinent terms down, ’cause there are hundreds, and I only have so much time, after all, and my brain is only so big, I’ll do some scenarios to get us all comfortable with the terms. Then I’ll go over reading the stock market page. It might be fun to also learn about some of the Masters of Investing as well. And then we’ll get to the nitty gritty: evaluating potential stocks for purchase.

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Stock Market Investing Tips 101: The Series # 4: "What’d They Say?"

In Stock Market Investing Tips #2 and #3, we learned that value investing, more for the individual investor, mainly focuses on fundamental analysis, while growth investing focuses more on technical analysis. If you are not familiar with these terms, you may want to go back to these posts before proceeding.

In today’s blog, as well as the next few blogs in this series, we’ll go over a few key terms used in the stock market industry. Understanding these terms will later help you in evaluating potential stocks and ETFs for your portfolio (ETFS are “Exchange Traded Funds, or a ready made portfolio of stocks that you can trade just like a single stock).

I’ll provide quick definitions here, with a link to more detail should you be interested.

EPS- (Earnings per Share):
The earnings per share (”EPS”) is the total company net earnings divided by the total number of shares on the market. e.g. Profit divided by outstanding shares.

A normal EPS falls between $1 and $5 dollars. The higher the better, of course!


P/E Ratio- (Price to Earnings Ratio):
The Price to Earnings Ratio (”P/E”) is the selling price of the shares on the market divided by the earnings of each of those shares.

To paraphrase Jason Kelly in “The Neatest Little Guide to Stock Market Investing” , suppose a stock selling for $100 dollar on the stock market (price per share in the equation above) earned $10 per share (earnings per share in the equation above) last year, while a stock selling for $20 earned $1. The $100 stock has a P/E of 10, while the $20 stock has a P/E of 20.

What this tells you: Which one is better? The $100 stock is better, because you are getting more earning power for your share.

Bottom Line: The lower the P/E the better.

Dividend Yield:

Dividend Yield is a company’s annual cash dividend divided by cost per share. I like dividends!

Not all companies have dividends. Value stocks tend to have them, while growth stocks tend not to, reinvesting their profits back into the company for continued accelerated growth.Phew, that’s enough for today!

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Stock Market Investing Tips 101: The Series # 3: Fundamental Analysis vs Technical Analysis

In his latest book “The Neatest Little Guide to Stock Market Investing“, Jason Kelly writes:

There are two ways to evaluate stock. The first way is using fundamental analysis, which examines information about
the company’s health and potential to succeed. You use fundamental
information to learn about a company. The second way is
using technical analysis, which examines the past
behavior of the stock price in different market conditions and attempts to
predict the stocks future price based on current and projected market conditions
and trading volume. You use technical information to learn about
the company’s stock.

He then goes on to describe each type of analysis in more detail:

Fundamental Analysis:

For individual investors, fundamental analysis
should form the core of their evaluations. Choosing good
companies is what I consider the core of successful investing…and a long term
investment strategy. By looking at a company’s management, its
rate of growth, how much it earns, how much it pays to keep the lights on and
the cash register ringing are easy things for you and me to understand.
After all, we constantly balance these things in our own lives.
[By doing this] you determine the company’s intrinsic value. Intrinsic Value is the price the stock should be selling at under normal
conditions. The most important fundamental measure in
determining a company’s intrinsic value is earnings: what the company is
earning now, and what you expect it to earn in the future. After
that, you want to know the company’s assets, if it’s in debt, and the history of
the management. Once you have a clear picture of the company’s intrinsic
value, you examine the price to see if it’s selling above or below its
value. If it’s selling below its value, it’s a good buy. If
it’s selling above its value, it’s overpriced. Of course, there’s
more to it than that, but for now let’s leave it black and white.

Technical Analysis:

…is a little harder to understand. It uses
charts of price history, computer graph patterns, and crowd psychology to
evaluate stock. The premise of technical analysis is that supply
and demand drive all stock prices. Fundamental information
doesn’t matter until it affects demand. The main measurement
technical analysts use to gauge demand is trading volume. After
that, they look at trend charts, volatility, and small price
movements.
Technical analysis is useful, but a takes a lot
more than a nodding acquaintance to use correctly. [For the busy
investor, it is not a method to rely on.] However, there are a few
simple technical measures that you’ll find helpful as you embark on
your stock picking adventure. You’ll use them to
gauge where the overall market is at and to determine if the stocks that
interest you are selling at more or less than their intrinsic value, which you
will know after conducting your fundamental research.

He summarizes:

You evaluate the company behind the stock with
fundamental analysis, then you evaluate the price of the stock and its demand
with technical analysis.

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Stock Market Investing Tips 101: The Series #2: Value vs Growth Investing

What I am doing right now is learning the stock market lingo. And it is another language, and there is a lot of it! I am feeling a bit overwhelmed. I am thinking that organizing it in writing should help, and also provide an indexed series of references to refer back to later on. I’ll pull my explanations from a number of sources, and provide links as well. Often I will be referring to an excellent finance read for the beginning investor: “The Neatest Little Guide to Stock Market Investing” by Jason Kelley.
The terms for today are Growth Investing vs Value Investing. Referred to as “the great divide” and “opposites sides of the street”, these two ways of evaluating stocks are pretty polar, and probably just a little bit old news, as now the philosophy is to incorporate a little of both styles. But understanding them is essential.
Here’s a nice summary from Wikipedia. Don’t let the terms scare you. You can look them up by going to the Wikipedia link or googling them, or in the investment dictionary at the end of this page (scroll to bottom). I will also be covering them in future posts.

Below is taken from Value vs Growth Investing at Wikipedia, the free encyclopedia:

Performance of Value and Growth styles
For several years at a time, quite often one of the style of investing will
perform better than the other. In the late 1990s growth style stocks
significantly outperformed value style stocks. However, since 2000 value stocks have outperformed growth. Some people believe the performance of the two styles goes in a cycle, even viewing them as distinct asset classes, with a view to make strategic switches.

Warren Buffett on Value vs. Growth
Billionaire investor Warren Buffett has been highly critical of these styles.
He has commented that investment ratios such as Price/earnings ratio are no guide to value. In an excerpt from his 2000 letter to shareholders he wrote the following: Market commentators and investment managers who glibly refer to growth and value styles as contrasting approaches to investment are displaying their ignorance, not their sophistication.
This is because Buffett believes the most important ratio is price/intrinsic
value, and intrinsic value incorporates the growth rate of the business. However, this is a less practical measure than price/earnings since intrinsic value depends on the estimate of future cash flows, and can therefore be highly subjective.

Tune in this week for the next investing installment: Fundamental vs Technical Analysis

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Stock Market Investing Tips 101: The Series #1 Creating a POA

To all of you novice investors out there with little money but a brimming curiosity for the stock market: I am starting a new hobby: Stock Investing. To that end, I will be posting a series of blogs over the coming weeks describing my low risk steps as a small investor, what I have learned, my successes, and (hopefully not, but) my failures.

This first entry outlines my Plan of Action (POA) thus far. Outlining initial goals is important. If you are doing this with me, sit down, pick up a pen, and make your own POA right now. Go ahead! What have you got to lose?
I will let you know if I modify mine in the future. As I become more knowledgeable through continued reading, discussions, practice, and posted comments from you investment savvy readers out there, things could change. But here is where I am at thus far:

Stock Market Investing Goals for 2008

1. Open an Ing Sharebuilder Account (completed, with there $50 promotion). If you are interested in the promotion, see this link.
2. Generate $1000 through alternative incomes other than my day job to be used for the sole purpose of stock market investing. I have generated $200 so far by opening two Sharebuilder accounts (one for my spouse), a new Chase Freedom Credit Card ($50 cash back), and giving up my morning coffee for the last month.
3. Through identified investigative strategies as described by Jason Kelly, Benjamin Graham, Philip Fisher, Warren Buffett, and others, identify 5 value stocks (more on value vs a growth stocks later) for my portfolio. 4 of the 5 stocks will be “green” companies. Shooting for “green” investments aligns with another personal goal of mine: not trashing the planet while becoming financially secure. I will do this following my 80/20 rule for success through moderation. For those of you unfamiliar with the 80/20 rule, it means if you do good things 80% of the time you pat yourself on the back.
4. Watch these stocks and purchase at low points in their market price fluctuation cycle. Do this through the course of the year as the money becomes available.
5. Watch the money grow!

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