FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com


Join the forum, it's quick and easy

FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com
FINANCIAL CHRONICLE™
Would you like to react to this message? Create an account in a few clicks or log in to continue.
FINANCIAL CHRONICLE™

Encyclopedia of Latest news, reviews, discussions and analysis of stock market and investment opportunities in Sri Lanka

LISTED COMPANIES

Submit Post


ADVERTISE
Poll

EXCHANGE RATE PREDICTION: 2022

 
 
 
 

View results

ශ්‍රී ලංකා මූල්‍ය වංශකථාව - සිංහල
Submit Post


CONATCT US


Send your suggestions and comments

* - required fields

Read FINANCIAL CHRONICLE™ Disclaimer



Latest topics

» STOCK market for beginners
by Asoka Samarakone Today at 11:30 am

» Cheap Politics of Dhammika Perera: Call for Finance Ministers Resignation
by apple Yesterday at 2:27 pm

» දම්මික පෙරේරාට වැඩ වරදී
by ChooBoy Yesterday at 12:34 pm

» Sri Lanka: Tea industry faces multiple setbacks, may shut down
by ChooBoy Yesterday at 6:38 am

» Excerpts from Premier's Speech in the Parliament
by God Father Yesterday at 6:28 am

» Sri Lanka expected to increase rates as inflation soars
by ChooBoy Tue Jul 05, 2022 10:18 pm

» SEC overhauls regulations governing market institutions and market intermediaries
by CHRONICLE™ Tue Jul 05, 2022 9:03 am

» The war in Ukraine is no longer shocking the wheat market
by ResearchMan Mon Jul 04, 2022 12:44 pm

» POSITIVES & TARGETS BY IMTIAZ BUHARDEEN
by cseguide Mon Jul 04, 2022 11:34 am

» Analysis: China casts giant shadow over emerging nations' chase for debt relief
by ChooBoy Mon Jul 04, 2022 7:38 am

» In STOCK MARKET despite all odds, there is always hope. Never ever give in nor give up.
by atuts Sun Jul 03, 2022 2:14 pm

» India raises import tax on gold to support rupee and amid trade deficit
by ResearchMan Sat Jul 02, 2022 2:09 pm

» When will supply chain disruptions ease?
by ResearchMan Sat Jul 02, 2022 9:57 am

» Expolanka to continue its winning streak
by samaritan Fri Jul 01, 2022 4:12 pm

» Govt gets its priorities wrong
by samaritan Fri Jul 01, 2022 10:25 am

» Ambassador assures U.S. support to Sri Lanka to find solutions to economic issues
by samaritan Fri Jul 01, 2022 10:16 am

» IMF-Sri Lanka bailout talks end without a deal
by ChooBoy Fri Jul 01, 2022 9:16 am

» Sri Lanka Breaks Into Hyperinflation Zone Amid Dollar Crunch
by CHRONICLE™ Fri Jul 01, 2022 8:11 am

» Sri Lanka needs to do more on debt restructuring before a bailout package is finalised, says IMF
by CHRONICLE™ Fri Jul 01, 2022 8:06 am

» Global COVID cases rise as BA.4 and BA.5 expand
by samaritan Fri Jul 01, 2022 7:04 am

EXPERT CHRONICLE™

MARKET CHAT


CHRONICLE™ ANALYTICS


ECONOMIC CHRONICLE

GROSS DOMESTIC PRODUCT (GDP)


CHRONICLE™ YouTube

LATEST TWEETS

You are not connected. Please login or register

FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Rule of Thumb for Stock Market Investors

Rule of Thumb for Stock Market Investors

4 posters

Go down  Message [Page 1 of 1]

1Rule of Thumb for Stock Market Investors Empty Rule of Thumb for Stock Market Investors Mon Jul 14, 2014 9:48 pm

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Rules of thumb
Fund manager Peter Lynch in his two best-selling investment books entitled One up on Wall Street (1989) and Beating the Street (1993) has outlined several strategic rules of thumb or criteria that should be evaluated when considering a particular security investment:

Market cap
Market capitalization less than $5 billion - Lynch generally avoids large, well-known companies in favor of small-cap stocks that still contain significant upside potential. Most fund managers define small-caps as companies with market capitalizations under $1 billion. Institutional investors often use market one investment criterion, requiring, for example, that a company have a market capitalization of $100 million or more to qualify as an investment. Analysts look at market capitalization in relation to book value for an indication of how investors value a company’s future prospects.

PEG ratio < 1.2
PEG ratio below 1.2 – The PEG ratio is a valuation metric that compares a company’s price-earnings ratio with its projected growth rate. Small, high-growth stocks generally trade at higher PEGs compared to the big-caps. If the PEG ratio is around 1, the company is considered fairly valued. A PEG ratio that is much higher than 1 indicates an overvalued company, and a PEG below 1 indicates an undervalued company. While the PEG ratio can effectively provide insight in certain evaluations, it is limited by its overriding focus on earnings growth. Revenue growth, cash flow, dividends, debt, and numerous other factors are also critical in determining value. Additionally, while PEG is useful for smaller companies it may be misleading for big-caps, since sustained growth is less important to their total returns. PEG is most useful when supplementing a thorough discounted cash flow analysis or relative valuation.

Earnings growth 15–30%
Five-year earnings growth between 15% and 30% per year - In investments, earnings growth refers to the annual rate of growth of earnings, or the amount of profit a company produces during a specific period, usually defined as a quarter (three calendar months) or year. Earnings typically refer to after-tax net income.. When the dividend payout ratio is same, the dividend growth rate is equal to the earnings growth rate. Earnings growth rate is a key value that is needed when the DCF model, or the Gordon's model as used for stock valuation. Companies that exceed a 30 percent earnings growth rate are confronted with two fundamental problems: (1) sustaining a high growth-rate over the long term is extremely difficult; and (2) stocks growing that rapidly are usually already being actively covered by Wall Street analysts, and Lynch prefers less well-known names and avoiding competition.

Debt ratio < 35%
Debt-to-Equity (D/E) ratio below 35 percent - If a companies debt levels are excessive, it often proves extremely difficult for managers to raise sufficient cash to finance continued expansion. Without expansion into new markets, corporate growth eventually slows down. Companies with lower debt often have better prospects for future expansion. Additionally, in the event of an economic slowdown, these firms should be in better shape to weather any storms. Regarding debt-equity ratios, Lynch cites 0.33 (25% debt compared to 75% equity) as normal for a corporation. Additionally, he believes a debt-equity ratio of 4 reflects a weak balance sheet.[8] Buffett echoed Lynch’s avoidance of companies that have significant debt. He argued that debt is “the weak link that snaps you." A good business "will produce quite satisfactory economic results with no aid from leverage" while a company with significant debt will be vulnerable during economic slowdowns.[5]

Institutional ownership 5–65%
Institutional ownership ranging between 5% and 65% - Institutional investors are organizations that trade large volumes of securities. Percentage institutional ownership is the percentage of outstanding shares that are owned by mutual funds, pension plans and other institutional investors. Most well-known stocks have at least 40 percent institutional ownership. Typically, upwards of 70 percent of the daily trading on the New York Stock Exchange is on behalf of institutional investors. Peter Lynch uses the degree of institutional ownership to gauge market interest. His contention is that stocks with a relatively small level of institutional sponsorship offer the best return potential. When 'Wall Street' analysts identify a stock and institutional money begins flowing in, price growth can be dramatic.

Dividend yields
When yields on long-term government bonds exceed the dividend yield (annual percentage of return earned by an investor on a common or preferred stock) on the S&P 500 Index by 6 percent or more, Lynch recommends selling stocks and purchasing bonds. He recommends this as a type of value-contrarian-safety strategy, claiming that when this situation occurs investors should enjoy the "risk-free" investment of bonds, they are either yielding exceptionally well or the stock market is over-valued. Either way bonds make more sense than stocks at that time. This is the only exception to Lynch's assertion that stocks are always better investments compared to bonds.[9] (See Fed model)

Cyclical stocks
For cyclical stocks it is recommended to purchase when the P/E ratio is low, and sell them when the P/E ratio is high (i.e. when earnings are peaking). Cyclical stocks tend to rise quickly when the economy turns up and fall quickly when the economy turns down. Examples are housing, automobiles and paper.

Cyclicals can be a rewarding investments if purchased at their bottom price, so it helps to seek opportunity in depressed stocks, rather than analyzing potential reasons why a cyclical will take losses. When cyclical stocks are crushed by a weak economy and it appears things could not possibly worsen, cyclicals usually hit their bottom.

Lynch goes on to explain the PE ratios for cyclicals, advising the time to buy is when their PE hits a historic high, because 'Wall Street' has caught on to cyclicals and often begins discounting them before the overall market tops-out (i.e., ends a period of rising prices and is expected to stay on a plateau or decline). When a cyclical stock is at a low PE ratio, alongside record-high profits that have grown for several years, the market is anticipating a downturn. When a cyclical reaches a high PE on very low earnings, the price may be ready for an upturn because earnings will be at or near their nadir.

SHARK aka TAH

SHARK aka TAH
Expert
Expert

Thanks alot Quibit  Very Happy 
You have definitely added value to SLEF
You are a STAR  flower 

stevenapple


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Thanks Q . Different perspectives.

VALUEPICK

VALUEPICK
Expert
Expert

There are very important points in this post where we can make use of them to pick winning stocks, hidden gems and fast growers in advance. Thanks.

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum