Price Per Earnings Ratio (P/E)
The price per earnings ratio (P/E) can be very helpful in judging the valuation (how cheap a stock price is).
Basically, what the P/E tells you is how many years worth of current earnings it would take for the company to earn your share price. PE ratio = Share Price/Earnings per share (EPS). If the share price is $10 for a company making 50 cents per share, its P/E ration would be 20.
It depends upon the growth rate of a company. If their earnings are steady, 10-12 EPS is acceptable. If they are growing, 15-20 is acceptable. Any company with a large growth rate can warrant up to 40+. Google currently has a 38 P/E ratio because they are expected to grow their EPS about 25% this year.
There is no exact formula showing what a fair P/E ratio is, but this seems to work well.
October 2009 – Skyworks Solutions, Inc. (SWKS)
My stock play for this month is a little speculative, but could pay off big.
The industry that I believe to have huge growth potential is the wireless networking. Inside mobile devices is the products of a company called Sky Works Solutions, Inc. (SWKS). As of October 5, the price has pulled below the 50 day moving average, and it has presented a buying opportunity. If you can get this stock below the 12.30 mark, it is a buy.
This company has a good cash flow working for them, and I like that they are paying off their long term debt, while they are still able to build their cash position.
I want to remind you not to invest on advice alone, but to do your own research.
Top Five Reasons to Run Your Investment Account
When I first opened up my own personal investment account, I wondered if I was making the right decision. After learning the ups and downs of the stock market, I am so glad I decided to start! I started running my own IRA, and I have done so well that I decided to open a non-tax sheltered account as well for my vacation fund. Over the years, I have discovered that I actually did better in my self-run accounts than I did in the accounts I had that were run by money managers! I suggest that you start small, and run an account on your own as well.
Here are the top five reasons for you to run your own investment account instead of paying someone to do it for you:
Just as it is a lot cheaper for you to fix your own car, do your own plumbing, and paint for yourself, it is a lot cheaper for you to run your money yourself. Just think about it. If you pay a man for his advice and fees to make trades, you are paying for his fancy chair, office with a view, hot rod car, etc. If you make your investment decisions yourself, you only pay for the trades you make.
In the information technology age we are in right now, you can find all the information you need online to do research for good investments. There are stock idea blogs, investment tools, stock quotes, educational sites, and advice for best investment. Everything you need to be a great investor is at your fingertips, and most of it is free!
It has been found that only 6% of money managers actually do better than the S&P 500 index fund. So by investing in SPY(S&P index fund), you are among the top 94% of investors!
I don’t know if you realized this, but money managers are the ones that move the stock prices! Because they have to deal with large amounts of money, when they sell, the stock goes down. When money managers buy, the stock goes up! You, as a small investor hardly affect the price at all. Take advantage of this fact! All you have to be able to do is buy the stocks that managers are buying after they sell, and sell them after they buy to make money. Use the stochastic charting tool on most charting software to help you know when stocks are overbought or oversold.
Really, who cares more about your money? If you lose money, it hurts you. If they lose your money, they still get paid. You are better off using that sense of responsibility to your advantage. If you care about your money, you are going to do the work necessary to help you keep and grow that money.
My advice is to keep the money that you would pay an investment professional and invest it yourself. You will be much better off.