Find Automated Great Stock Trading Ideas using StockDomo.com (and track the performance of different buy strategies)

Want to find great stock trading ideas using automated methods? StockDomo.com provides great automated stock trading ideas based on many Buy Signal Strategies including stocks with above average volume exceeding the 52 week high. The performance of the different strategies will be tracked as well.

StockDomo.com

Newly Developed Stock Screener which uses the PEGY Ratio.

There's a newly developed Stock Screener at InvestDashboard.com.

There are many interesting filters there including Above Average Volume (for the day), Forward PE, EV to EBITDA Ratio, Beta as well as the PEGY Ratio.

The PEGY Ratio is an interesting way to evaluate whether or not a stock is growing at a reasonable price. For example, the PE might be high, but is there enough growth to justify paying for that price?

It is similar to the PEG Ratio but the PEGY Ratio includes the Yield. A PEGY Ratio of 1 or less is very good. Anything below 1.5 is still good.

PEG Ratio = (Price / Earnings) / ((5 Yr Growth %)*100)

PEGY Ratio = (Price / Earnings) / ((5 Yr Growth % + Yield %) * 100)

Here is the stock screener at InvestDashboard.com.

Historical Best Day of Month to Dollar Cost Average or Invest: UPDATED: 1950 to 2014

Historical Best Day of Month to Dollar Cost Average or Invest: Updated: 1950 to 2014

This article updates the previous "Best Day of Month to Dollar Cost Average".



1. This article now covers February 14, 1950 up to July 8, 2014.



2. The previous article used the Average S&P 500 methodology, which over weighed the S&P 500 when it is large (over 1500), and under weighed the S&P 500 when it was small (around 20 on the S&P 500 in 1950).



3. This article uses the "Percent Above 30 Trading Day Moving Average" methodology.   This way, whether the S&P 500 had a low value or high value, the results have equal weight.



4. To determine the best day of month to dollar cost average, choose the lowest "percent above 30 trading day moving average" value.



Chart:

The Results:

The best two days of the month to dollar cost average are on the 26th (#1) and 25th (#2) with the lowest value of percent above 30 trading day moving average.

#3a: 19th    (0.20%)
#3b: 27th    (0.20%)
#4a: 10th    (0.22%)
#4b: 24th    (0.22%)

The rest of the values can be seen in the chart above.

Beginning of the Month Boost:

At the beginning of the month, the percent above 30 trading day moving average seems to be at its highest values.

One possible reason why is because of investment in 401k and retirement funds close to the beginning of the month, which pushes the S&P 500 up during this time.

SDIV: Global, High Dividend Exchange Traded Fund (ETF), Good Diversity.

Are you looking for a single ETF or mutual fund to help give you great diversification and a high dividend?  You should consider an international ETF which produces a high dividend.  SDIV, an ETF (Exchange Traded Fund) from Global-X Funds, does that.


As of June 2014, the 12 Month Dividend Yield is 6.01%.   The Total Annual Fund Operating Expense is 0.58%.     


In terms of country breakdown, 25.81% is invested in the United States, 17.85% in Australia, 9.14% in Canada, 8.14% in France, 7.69% in the U.K., 6.01% in Singapore, and so on.


In terms of industry, Financials occupies 20% of the portfolio, REITs (Real Estate Investment Trusts) 15%, Utilities 13.5%, Telecom Services, 12.2%, Mortgage REITs 10.6%, Energy 9.2%, Industrials 5.03%, Consumer Discretionary, 4.8%, Health Care 2.8%, Materials 2.7%, and Info Tech at 2.1%.  


SDIV could be a great way to get high dividend diversification.   And if you can find SDIV in a commission free program by your broker, you could invest in SDIV cheaply (because you have no commission fee) in an automatic investment plan where you invest some regular sum at regular intervals.   Watch your reinvested dividends (especially in a high dividend ETF), grow.   Experts often say that reinvested dividends is a great way to grow your money.

Jim Cramer Cameo on Iron Man Movie

While watching the Iron Man Movie, I was surprised to see a hilarious cameo by CNBC Personality and host of the CNBC Show "Mad Money." Based on the audience reaction, looks like there were enough people who recognized Jim Cramer.

The Iron Man Movie itself is worth going to the theatre for.
















WARNING: SPOILER ALERT COMING UP!

In the movie, Tony Stark, weapons developer and the man behind Iron Man, mentions that he will be suspending his weapons development operation division.

We later see a television, where Jim Cramer is on the CNBC Mad Money show, passionately ranting as he put Stark Industries (with the fictional symbol: SIA) on the Sell Block, hits the bear button sound and visual effect, and then gets his baseball bat and crushes a Mad Money cup.

Yes, watch the Iron Man movie. It is a good movie and it's also interesting to see Jim Cramer's great Cameo.

Profit by Controlling Your Stock Market Losses

When managing your stock portfolio, do you get upset by positions which go badly against you? What can you do and how should you look at losses in your portfolio.

Jim Cramer's View

Jim Cramer, in his Book, "Real Money: Sane Investing in an Insane World" presents his Seventh Commandment of Trading: Control your Losses.

"Losses do you in. They always do you in. Controlling losses is the most important thing you can do. I don't really care how you do it. If it is to put on stops in trading, then so be it. If it is to decide that you are never going to let a position run a point against you, then fine. But you must heed the seventh of my 10 Commandments of Trading:
Control losses; winners take care of themselves."
- Jim Cramer

While Jim Cramer was talking about trading, the same concept applies to longer term investing.

Peter Lynch View

Peter Lynch, in his book "One Up on Wall Street" (page 75, paperback edition):

"People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game. If they've done the proper homework on H&R Block and bought the stock, and suddently the government simplifies the tax code (an unlikely prospect, granted) and Block's business deteriorates, they accept the bad break and start looking for the next stock. They realize the stock market is not pure science, and not like chess, where superior position always win. If seven out of ten of my stocks perform as expected, then I'm delighted. If six out of ten stocks perform as expected, then I'm thankful. Six out of ten is all it takes to produce an enviable record on Wall Street." - Peter Lynch

Imagine that, all you need is six out of ten stocks to do well. That means even great investors such as Peter Lynch do make mistakes.

William O'Neil's View

Growth stock investor William O'Neil, founder of Investors Business Daily, often has sell rules such as sell when a stock goes down 7-8% below the proper buy point, or sell at a certain percentage down. He too has a discipline, to make sure his losses do not grow and ruin the portfolio. He also does not "marry" or become "attached" to a stock, a common mistake some investors make.

Investor's Business Daily mentions that "being a successful investor is just as much about limiting losses as it is about riding a winning stock. Downturns are part of life in the market, and you must act decisively to shield yourself form excessive losses. If your stock selection doesn't work out and you're faced with a loss, don't let your pride stop you from admitting you've made a mistake and activing quickly. Cut your losses early and move on. You must make rational decisions, instead of trying to rationalize your way out of a costly mistake."

Wall Street Saying: Cut your Losses Short and Let Your Winners Run

All the comments above reflect a common Wall Street Saying regarding Cutting your Losses short and Let your winners run. This is what every investor should do, but it often turns out that some investors do the opposite. They take profits quickly, and allow losses to start growing.


So don't forget to Control your Stock Losses!

Anti-Recession Stocks that can survive a US slowdown.

Diversifying your portfolio is often a good idea. Whether we have a Recession in the US or not, each portfolio should have some stocks which hold up during a recession. Often, two sectors mentioned are Consumer Staples and Healthcare.

Here are a few interesting stocks that may be good stocks to hold even when the US experiences a recession.

1. Procter and Gamble (PG)

Everyone around the world knows and uses Procter and Gamble products. They make consumer staple products such as Gillette, Head and Shoulders, Pantene, Crest, Vicks, Oral-B, Pringles, Folgers, Downy, Tide, Bounty, Charmin, and Pampers. This $223 Billion company operates three Global Business units: Beauty, Health and Well-Being, and Household Care. PG has a forward PE of 18.37, 5 year estimated growth of 13, a PEG ratio of 1.41 (reasonable for a consistent growth company), has a yield of 1.9%, and is within range of its 52 week high.


2. Unilever (UL, and UN)
   
   Unilever is a well known and large company based in England and the Netherlands. They provide many well known products including fast moving consumer goods, food, home and personal care. They own the brands Knorr, Country Crock, Ben and Jerry's Ice Cream, Klondike, Posicle, Lipton Tea, SlimFast, Dove, Suave, Vaseline, Close Up toothpaste, Comfort, Snuggle, and Surf. Forward PE is 17.48 and its yield is 2.60%. The stock is within range of its 52 week high.
   
   
3. Pepsi (PEP)
   
   Everyone knows Pepsi brands including Pepsi, Doritos, Frito-Lay products, Ruffles, Quaker Oats products, Mountain Dew, Tropicana Juice drinks, Dole, Rice-A-Roni, and other products. Forward PE is 20, with a yield of 2%. The stock is within range of its 52 week high.
   
   
4. Altria (MO)
   
   Altria is a $158 Billion company that specializes in selling tobacco products (Philip Morris and related brands) and food products, and they used to produce products from Kraft (KFT). However, Altria has spun off Kraft (KFT), so Altria can concentrate on tobacco products. Altria (MO) has a forward PE of 16, and a forward yield of 4.0%. Kraft (KFT), makers of Oreo and Tang, has a forward PE of 16 and a yield of 3.40%. MO is within range of its 52 week high.
   
   
5. Gilead (GILD)
   
   Healthcare is also an important anti-recession sector and Gilead, a $43 Billion Biotech company, is a good company in this sector. They have a good pipeline and produce important products such as Tamiflu and medicines for AIDS related Kaposi's sarcoma. Forward PE is 24, a 5 year estimated growth rate of 17% for a reasonable 1.41 (under 2 is reasonable). The stock is also within range of its 52 week high.
   
   
6. Sun Healthcare (SUNH)
   
   Long term healthcare, especially those companies that cater to the growing population of senior citizens (Baby Boomers will be retiring), is another great anti-recession play. Sun Healthcare (SUNH), a $730 million company, does just that. It has a forward PE of 20, a 5 year estimated growth rate of 24%, for a very good PEG of 0.83 (a PEG under 1 is very cheap). The stock is within range of its 52 week high.
   

So even as the US slows, the companies above should stand to benefit. The companies above are good companies, and most of them are large companies with great international growth and presence. Some even have a decent yield to help cushion your portfolio.

Even if the US stock market does not experience a recession, your portfolio should still have a portion invested in good companies in Consumer Staples and Healthcare, two sectors that should be able to withstand a US slowdown.

Risks of US Recession may be Increasing

According to many sources, the risks and odds of a United States Recession may be increasing.

Here's an article from MSNBC.

Here's one from TheStreet.com.

According to the TheStreet.com article, different firms rate the odds of recession in the US:

1. Bill O'Donnell UBS 67%
   
2. Jack Ablin Harris Private Bank 65%
   
3. Kevin Giddis Morgan Keegan 60%
   
4. Greg Collins Fountain Hill Investments 60%
   
5. Robert Pavlik Oaktree Asset Management 45%
   
6. Tobias Levkovich Citigroup 40%
   
7. Fred Dickson D.A. Davidson 40%
   
8. Richard Sparks Schaeffer's Investment Research 20%
   
9. Neil Hennessy Hennessy Funds 0%
   

What are the Odds of Recession in USA Now (January 2008). Calculated Here.

Many people are concerned about the slowing economy and a possible US Recession.

Can we calculate the odds of a recession?

There are many models, but one of them is by the Federal Reserve Board's Jonathan Wright. It takes three items into consideration:

1. 10 Year Treasury Bond Yield
   
2. 3 Month Treasury Bond Yield
   
3. Federal Funds Rate
   

More information on this available here

Odds of Recession as of January 2, 2008

Current Numbers:

1. 10 Year Treasury Bond Yield: 3.91% (50 Day Moving Average: 4.17%)
   
2. 3 Month Treasury Bond Yield: 3.26% (50 Day Moving Average: 3.34%)
   
3. Federal Funds Rate: 4.25%
   

If we calculate using the current yields, the Odds of Recession as of January 2, 2008 over the next 12 months is 12%.

If we calculate using the 50 day moving average of the yields, the Odds of Recession as of January 2, 2008 over the next 12 months is 9.5%.

The Odds of Recession has gone down since we last calculated the odds on September 1, 2007 (23% odds of recession over the next 12 months from then).

Health Care Plans: By the Numbers

In this article, we look at different Health Care Insurers (targets of Michael Moore's "Sicko" movie) and look purely at the raw numbers. (Data taken from Yahoo Finance on Friday, June 29, 2007):

Symbol	Stock Name	MyPEG	Forward PE	5 yr growth	Yield
HUM	Humana	0.23	12.69	18.33%	0%
AET	Aetna	0.35	13.07	15.56%	0.10%
MOH	Molina Healthcare	0.46	14.46	13.00%	0%
CNC	Centene	0.48	12.03	15.50%	0%
HS	HealthSpring	0.49	12.46	13.60%	0%
AGP	Amerigroup	0.56	10.96	14.40%	0%
HNT	Health Net	0.56	12.75	13.71%	0%
WCG	WellCare Health Plans	0.59	16.70	16.90%	0%
UNH	UnitedHealth Group	0.65	12.98	16.14%	0.10%
WLP	WellPoint	0.71	12.47	14.90%	0%
CVH	Coventry	0.73	12.90	13.54%	0%
SIE	Sierra Health Services	0.83	15.63	15.33%	0%
CI	Cigna	0.94	12.77	11.97%	0.10%
MGLN	Magellan Health Service	1.11	20.84	16.48%	0%
DMX	I-Trax	1.33	41.60	30.00%	0%

In order to understand the chart, we have to understand the different elements.

MyPEG

MyPEG is my own variation of the PEG Ratio. A MyPEG of less than one means the stock is cheap relative to its growth. A MyPEG of greater than two means the stock is very expensive relative to its growth. More info on MyPEG in this link. MyPEG incorporates the yield and cash per share.

Forward PE

Forward PE is the Price divided by Forward estimated earnings. When choosing between a stock that has a PE of 15 and a growth rate of 15% vs. a stock that has a PE of 30 and a growth rate of 30% (both have a PEG ratio of 1), I'll prefer the former. The reason is that high PE's are often priced to perfection. Any miss and high PE stocks can get hit very hard. Stocks with Lower PEs have less expectations and have a greater margin of safety. Another reason is that I have more confidence in the forward PE than the 5 yr. estimated growth rate. So the results are better by preferring the lower PE stock given an equivalent PEG or MyPEG because the 5 year growth rate is given less importance. Lastly, stocks can't maintain 30% plus growth for long periods of time, so growers from 15-30% might be preferred.

5 Yr Growth

5 Yr Growth is an estimate by the analysts. As I discussed earlier, the higher the better, though some people such as the legendary Peter Lynch have suggested that buying fast stocks, but not too fast, might be a good idea (from Peter Lynch's One Up On Wall Street : How To Use What You Already Know To Make Money In The Market).

Yield

The higher yield, the better. If you have a high yield, high growth, and low PE, that's a good combination.

Symbol	Stock Name	EV/EBITDA	%Short	%Inst. Own
HUM	Humana	5.184	3.70%	88.80%
AET	Aetna	4.122	1.20%	86.50%
MOH	Molina Healthcare	3.611	13.90%	48.50%
CNC	Centene	6.644	13.00%	102.60%
HS	HealthSpring	3.873	5.80%	74.20%
AGP	Amerigroup	7.342	8.90%	117.00%
HNT	Health Net	5.687	1.30%	92.20%
WCG	WellCare Health Plans	8.614	12.80%	106.60%
UNH	United Health Group	7.874	0.70%	85.60%
WLP	WellPoint	8.15	0.90%	83.60%
CVH	Coventry	7.735	2.20%	90.00%
SIE	Sierra health Services	10.309	3.80%	79.70%
CI	Cigna	7.45	1.90%	80.20%
MGLN	Magellan Health Services	7.399	8.60%	104.30%
DMX	I-Trax	27.985	4.60%	52.90%

EV/EBITDA

Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation and Amortization. It is another measure of valuation. The lower the Better. A value of 8 or less is very good.

% Short

The higher the percentage, the higher number of people who believe the stock should go down. However, the higher the percentage, the better for those who go long because if good news is to hit a stock, not only does the price go up, but all those people who are shorting have to "cover" (Buy a stock to fulfill their loan obligation to the broker) their short position further fueling the gains. This is often called a "short squeeze".

% Institutional Ownership

People have different theories on this. Some people, like Peter Lynch, prefer a stock without that much institutional ownership. Because once the big mutual funds discover the stock, this could propel the stock to multibagger (make many times your money on your original investment) heights. However, some prefer a higher institutional ownership because that means that mutual funds and other institutional investors are already buying the stock (and may have them in their approved to buy list), and when more money comes in, they may add to their position.

Conclusion

Based on all this and based on just the numbers, the entire group looks to be inexpensive as a whole. Humana (HUM), Aetna (AET), and Molina Healthcare (MOH) look to be good values, having an EV/EBITDA of 5 and under, and the MyPEG having values less than .50. All three stocks have a lot of cash per share, and Aetna (AET) and Molina (MOH), both have debt to equity (not listed above) less than .26 (very good).

Drink and Soda Stocks By the Numbers

In this article, we look at different Drink and Soda Stocks and look purely at the raw numbers. (Data taken from Yahoo Finance on Thursday, June 21, 2007):

Symbol	Stock Name	MyPEG	Forward PE	5 yr growth	Yield
HANS	Hansen Natural	0.77	22.80	28.60%	0%
CEDC	Central European Distribution	0.96	18.10	17.50%	0%
STZ	Constellation Brands	1.25	14.48	11.50%	0%
JSDA	Jones Soda	1.27	46.88	34.00%	0%
DEO	Diageo	1.30	17.22	10.50%	2.30
PEP	Pepsi	1.32	17.85	11.00%	2.30
BUD	Anheuser-Busch	1.52	17.13	9.00%	2.20%
KO	Coca Cola	1.58	18.15	8.50%	2.60%

In order to understand the chart, we have to understand the different elements.

MyPEG

MyPEG is my own variation of the PEG Ratio. A MyPEG of less than one means the stock is cheap relative to its growth. A MyPEG of greater than two means the stock is very expensive relative to its growth. More info on MyPEG in this link.

Forward PE

Forward PE is the Price divided by Forward estimated earnings. When choosing between a stock that has a PE of 15 and a growth rate of 15% vs. a stock that has a PE of 30 and a growth rate of 30% (both have a PEG ratio of 1), I'll prefer the former. The reason is that high PE's are often priced to perfection. Any miss and high PE stocks can get hit very hard. Stocks with Lower PEs have less expectations and have a greater margin of safety. Another reason is that I have more confidence in the forward PE than the 5 yr. estimated growth rate. So the results are better by preferring the lower PE stock given an equivalent PEG or MyPEG because the 5 year growth rate is given less importance. Lastly, stocks can't maintain 30% plus growth for long periods of time, so growers from 15-30% might be preferred.

5 Yr Growth

5 Yr Growth is an estimate by the analysts. As I discussed earlier, the higher the better, though some people such as the legendary Peter Lynch have suggested that buying fast stocks, but not too fast, might be a good idea (from Peter Lynch's One Up On Wall Street : How To Use What You Already Know To Make Money In The Market).

Yield

The higher yield, the better. If you have a high yield, high growth, and low PE, that's a good combination.

Symbol	Stock Name	EV/EBITDA	%Short	%Inst. Own
HANS	Hansen Natural	23.89	14.70%	60.70%
CEDC	Central European Distribution	16.51	10.20%	62.30%
STZ	Constellation Brands	9.81	11.40%	83.90%
JSDA	Jones Soda	105.68	26.30%	27.30%
DEO	Diageo	13.42	0%	18.70%
PEP	Pepsi	12.59	0.60%	68.50%
BUD	Anheuser-Busch	11.17	0.90%	63.00%
KO	Coca Cola	15.35	1.30%	64.50%

EV/EBITDA

Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation and Amortization. It is another measure of valuation. The lower the Better. A value of 8 or less is very good.

% Short

The higher the percentage, the higher number of people who believe the stock should go down. However, the higher the percentage, the better for those who go long because if good news is to hit a stock, not only does the price go up, but all those people who are shorting have to "cover" (Buy a stock to fulfill their loan obligation to the broker) their short position further fueling the gains. This is often called a "short squeeze".

% Institutional Ownership

People have different theories on this. Some people, like Peter Lynch, prefer a stock without that much institutional ownership. Because once the big mutual funds discover the stock, this could propel the stock to multibagger (make many times your money on your original investment) heights. However, some prefer a higher institutional ownership because that means that mutual funds and other institutional investors are already buying the stock (and may have them in their approved to buy list), and when more money comes in, they may add to their position.

Conclusion

Based on all this and based on just the numbers, Hansen Natural (HANS) and Central European Distribution Corp (CEDC) seem to have the best Growth at a Reasonable Price ratings.

Note that there are other companies that were not looked at including AmBev (ABV), a South American Drink Company, and National Beverage Corp (FIZZ), because there was some missing information. They could still be very good investments, however.

Improved Version of the PEG Ratio

In a previous article, we used the PEG ratio to evaluate a stock. While the PEG ratio is a good method, I've decided to create my own variation of the PEG ratio which I'll call MyPEG.

The Formula is this:

MyPEG = ((Current Price - Cash Per Share) / Forward Earnings) /
(Yield + 5 Yr Estimated Growth Rate).

What this does is take into consideration the dividend yield of a stock. It also takes into consideration how much cash is in the stock. As legendary investor Peter Lynch said, by taking cash per share into the equation, we might be able to find great bargains out there.

We will still use MyPEG the same way as PEG. A MyPEG < 1 means the stock is cheap, while a MyPEG > 2 is very expensive. We can compare stocks using MyPEG, but it's better to compare stocks in the same industry.

How to find the numbers through Finance.Yahoo.com

Go to Finance.yahoo.com and enter your stock symbol. You get a nice summary page with basic information and news. A very useful page is the Key Statistics Tab.

You can find this information there:

1. Market Cap: Top Part of Page
   
2. Trailing PE: Top Part of Page
   
3. Forward PE: Top Part of Page
   
4. Price: Very Top of Page
   
5. Cash per Share: Bottom Left side under Balance Sheet.
   
6. Yield: Lower right corner under Dividends and Splits
   

Another useful tab is the Analysts Estimates Tab.

You can find this information there:

1. Trailing 12 months Earnings: Top part of Page, look at Year Ago EPS under Current Year (Dec-07).
   
2. Current Year Earnings: Top part of Page, look at Avg. Estimate under Current Year (Dec-07).
   
3. Future Earnings: Top part of Page, look at next Year, Avg. Estimate
   

So to calculate the MyPEG of General Electric (GE):

MyPEG = ((Current Price - Cash Per Share) / Forward Earnings) /
(Yield + 5 Yr Estimated Growth Rate).

1. Current Price (June 22, 2007): 38.24
   
2. Cash Per Share: 1.872
   
3. Forward Earnings: 2.49
   
4. Forward Yield: 2.90%
   
5. 5 Yr. Estimated Growth: 10%
   

MyPEG = ((38.24 - 1.872) / 2.49) / (2.9 + 10)
= 1.13

Note regarding Banks and Brokers

You shouldn't use items like Cash Per Share in companies such as Banks or Brokers. It won't be accurate. Just see the Cash Per Share of Goldman Sachs (GS): 1,769. Not a valid number to use in the MyPEG formula.

Credits

I came up with adding Yield to the 5 Yr. Growth Rate by myself. I was inspired to use the cash per share method by reading Peter Lynch's One Up On Wall Street : How To Use What You Already Know To Make Money In The Market, an excellent book. I definitely recommend it. (Other Book Recommendations in the link or to the section to the right).

I combined both methods and created the MyPEG.

Note on PEG and Growth Rates

In other posts such as this analysis of Computer and Video Game Stocks, I often put in this section regarding PEG and Growth Rates because Growth Rates are estimates and may not be as reliable:

"When choosing between a stock that has a PE of 15 and a growth rate of 15% vs. a stock that has a PE of 30 and a growth rate of 30% (both have a PEG ratio of 1), I'll prefer the former. The reason is that high PE's are often priced to perfection. Any miss and high PE stocks can get hit very hard. Stocks with Lower PEs have less expectations and have a greater margin of safety. Another reason is that I have more confidence in the forward PE than the 5 yr. estimated growth rate. So the results are better by preferring the lower PE stock given an equivalent PEG or MyPEG because the 5 year growth rate is given less importance. Lastly, stocks can't maintain 30% plus growth for long periods of time, so growers from 15-30% might be preferred."

Evaluating stock using the PEG Ratio.

P/E Ratios

In evaluating stocks, many people look at the P/E multiple, or the Price to Earnings multiple. This is found by dividing the stock's current price by a companies trailing or expected future earnings.

For example, if we look at the stock of General Electric (GE) as of June 22, 2007, we see the trailing P/E ratio is 18.95, and the forward or estimated P/E ratio is 15.36.

Difference between Trailing and Forward PE

You might ask, what is the difference between the Trailing and Forward PE ratio? The trailing PE ratio refers to the price divided by the previous twelve months earnings. Those earnings were already reported, so the trailing PE can't be debated. Trailing PE is a way to see how the company did in the last twelve months.

Now the Forward PE ratio is calculated by dividing the current stock price by the estimated 12 months future earnings. There are analysts out there who predict how much a company will make in the next twelve months. Using the Forward PE is a way of seeing how a company will do in the future.

I personally prefer looking at Forward PE because I prefer looking at where a company will be going more than where a company's been in the last 12 months.

Is it better to buy a stock with a low PE or high PE?

Looking at the PE multiple by itself, it is hard to judge whether it is better to buy the stock. A company with a high PE might be justified in having a high PE because it is growing at a very fast rate. A company with a low PE might be priced correctly because it is growing at a very slow rate. However, what if a company has a high PE but the company is growing at a very slow rate? Or what if a company has a low PE but the company is growing at a very fast rate? With the former, you would say that the company is greatly overvalued. With the latter, you would say that this is a bargain!

PEG Ratio

Based on this, we can't look at the PE ratio to judge a company. We want to buy a company that is reasonably priced with respect to its growth rate. So that's where we come up with the PEG ratio, or the PE ratio divided by the companies growth rate.

Using GE again, we find, that GE has a forward PE of 15.36, and the 5 yr growth rate of 10%. So that means the PEG of GE is: 15.36/10 = 1.536.

So how do we use this number?

In general, if the PEG of a company is less than 1, the company is considered a very good value. If the company has a PEG greater than two, the stock is considered very expensive and it is best that it be avoided. With GE above having a PEG of 1.53, it is reasonable, but not extremely cheap.

Comparing PEGs

We could compare stocks and compare PEGs and choose the lower ones, but we could do better. It's better to compare the PEG of a company with its competitors or its industry because each sector might have a different range of good PEGs. You can use the PEG to choose the best stock in a sector.

Finding the information through Yahoo Finance

Now, you might want to know how to find the information in Yahoo finance. Go to finance.yahoo.com and enter your stock. You can see a nice summary page and find news stories about the stock, a companies market cap, and the Trailing PE ratio.

To find more details about the stocks, go to the Key Statistics tab. You can find the Trailing PE and the Forward PE. The PEG Ratio is also mentioned, but I prefer to calculate the PEG ratio myself.

If you want to manually calculate the PEG ratio yourself, you can find the forward PE, and then find the 5 yr estimated growth rate through the Analysts Estimates Tab. Go to the bottom part of the page and look for the 5 yr Estimated Growth. The Growth Rate of GE in this page is 10%.

So Forward PE = 15.36, Growth = 10%, so PEG is 1.536.

This investing style (by using PEG ratio) is called Growth At a Reasonable Price or GARP.

Improved Version of PEG incorporating Yield and Cash Per Share

The PEG ratio above is biased against slower growers with lots of cash and a good yield. So in order to incorporate this fact, I've developed the MyPEG. More information in this link.

Investing Book Recommendations

There are so many investing books out there, so how does someone new to the market start investing?

Books are a good way to learn. If you want a broad overview, you should start with the infamous Dummies series, and get Investing For Dummies, 4th Edition (Eric Tyson). Investors have to start somewhere, and the Investing For Dummies is a good start. (Alternatively, you can also buy and read "Personal Finance For Dummies" by Eric Tyson).

Okay, if you now know the basics, and know about 401ks/IRAs, stocks, ETFs, mutual funds, and have a general idea about the market, what should you read next?

Right now, there are many investing styles ranging from Growth to Value to everything in between. Some of these styles are very different from each other, and each philosophy may have very different rules. So where do we start?

I believe to get a good overview of the different styles, you should read these four books and decide for yourself what kind of investor you can become:

1. GROWTH: How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition (William O'Neil)
   
2. ?: Jim Cramer's Real Money: Sane Investing in an Insane World (Jim Cramer)
   
3. ?: One Up On Wall Street : How To Use What You Already Know To Make Money In The Market (Peter Lynch)
   
4. VALUE: The Essays of Warren Buffett : Lessons for Corporate America (Warren Buffett)
   

To start out, I would recommend reading both Jim Cramer's "Real Money: Sane Investing in an Insane World" and Peter Lynch's "One Up On WallStreet", Millenium edition.

Jim Cramer's book is a more contemporary look at investing, and goes into detail about the basics of stock investing, rules, cycles, stock sectors, creating a discretionary portfolio, spotting bottoms, and spotting tops, just to give a small sample.

Peter Lynch is the Legendary investor who managed Fidelity's Magellan to outstanding performance. Invest in what you know. He groups stocks into six categories such as "Slow Growers", "Stalwarts", "The Fast Growers", "The Cyclicals", "Turnarounds", and "Asset Plays". He helps investors in the process of choosing great stocks, and even multibaggers (make many times your original investment). Even if the book was written in 1989, this book is still a timeless classic. The Millenium edition has an interesting introduction by Peter Lynch himself in 2000, during the height of the dot-com bubble.

To get two very different takes on investing, you should read both William O'Neil's book (founder of Investors Business Daily , and a die hard growth investor who likes strong earnings growth and great charts), and Warren Buffett's book (Value Investor extraordinaire who made people rich through Berkshire Hathaway (BRK.B)). You'll see how two legendary investors look at investing in two different ways. But both succeed!

There are other recommendations to the right as well, but you may want to first try the books above first.

Stock Chart: LVLT (Level 3 Communications) has broken uptrend line? (June 15, 2007)

Level 3 Communications (LVLT), has been on a nice 2 year uptrend. However, recently, it looks like it has gone below the two year uptrend.

Looking closer at a 5 month chart:



We see that LVLT is underneath both the 50 and 200 day moving average, a bearish sign. Another bearish sign is that the 50 day moving average looks like it is about to go under the 200 day moving average (The Death Cross ).

The only positive I can see is that the stock has not breached the $5.20 support yet.


Note on Trend Lines:

Yes, give a chart to several chartists, and they may draw trend lines a bit differently. However, in the case above, the trend line looks correct, as the line is validated by six different points along the line. The Trend line also nicely supports the 200 day moving average.

Alternate Plays/Charts

Alternatively, Corning Incorporated (GLW), might be a good Alternative Play (Annotated Chart)

Prediction Correct: S&P 500 bounces then re-tests lows.

Here is the Prediction of the S&P 500 Bounce and Re-Test of Lows on June 8, 2007:



Now here is the actual behavior of the market during this period:




The prediction looks to be correct. Right now, the market is re-testing the lows. It is finding support in the area between the previous lows and the 50 day moving average. We have to wait and see if the support area holds, or else we will get some variation of this ABC Correction Prediction.

Investor Sentiment During the 4% Market Correction

Stockpickr.com brings social networking to the investing world. It is now currently owned by the Financial site TheStreet.com . Stockpickr has many features, but one of its interesting features is the Answers Section where any member can post questions, and anyone can answer, including Jim Cramer or James Altucher, the main founder of the site.

We can also use it to gauge what the average investor is thinking.

Recently, we had a 3.5% drop in the S&P 500. I've selectively chosen a few Answer Threads from Stockpickr to illustrate what the average person is thinking during this drop:

Ordered in Reverse time order:

1. "All right, now that we've had the weekend to step away from the markets and allow for last
week's action to digest ... anyone have any
thoughts on what's in store for tomorrow
morning?" Asked by Thomas Nunn

2. "Thursday am I sold off 95% of my stocks and
locked in my gains. I did nothing Friday 6/8,
only to see the DOW jump 130 pts. Do you think
we've hit bottom yet, or will there be another
substantial pullback?" Asked by John Kuhnemund

3. "Jim,
What did I do wrong in not knowing ahead of
time that a correction in the market was ready
to hit? I know there were warnings on TV (CNBC
of course) and in the papers. I also know the
momentum in the market could not go on forever.
I know investors need to "Expect corrections..."
What technical indicators do you look at and
keep a close eye on to show the market is ready
to head south? Thanks." Asked by cnyguy

4. "Do you guys think we are out of the woods yet
with this correction?" Asked by gtz550

5. " Hey Jim and James,
More so then ever I am scared of staying in the
game. I lost a big % in the past few days. How
much longer do you predict that this ugliness
will continue? Is this the summer selloff?
You've always been my cheerleader Jim. I could
sure use a morale boost. Frank from Philly" --
Asked by Francesco the kid


There's more of this. Maybe in another post.