The 5 DOs and 5 DON'Ts
To Buy
1. A
good example of a safe stock would be that of Walt Disney. The prices have
skyrocketed this year in 2014, and many people have made profits from these
shares. Walt Disney is also considered a blue chip stock, which are considered
to be the safest stocks to buy because of how stable and well blue chip
companies seem to operate. The yearly high was $80.92, and the current price is
around $78, well close to the yearly high. Many people also suspect that this
number will surpass the yearly high, as the stock has been going up in price
yearly. Dividends are paid consistently, as is accepted with blue chip stocks.
The Walt Disney Company (NYSE:DIS) last
released its earnings data on Wednesday, February 5th. The company reported
$1.04 earnings per share for the quarter, surpassing the consensus estimate of
$0.91. The company had revenue of $12.31 billion for the quarter, compared to
the consensus estimate of $12.23 billion. The company’s revenue for the quarter
was up 8.5% on a year-over-year basis. Analysts expect that The Walt Disney
Company will post $4.04 earning per share for the current fiscal year.
The stock was also helped by the success of
“Frozen”; the highest grossing animated film of all time. In the case of the
Walt Disney stock, investors are buying on both strength and high hopes for
future innovation. Additionally, with spring break and summer approaching, the
revenue for theme parks and recreational centers such as Disney World or even Six
Flags, is bound to increase.
2.
Through our research, we believe that we should buy the Pepsi stock, being that
the company has been earning a remarkable amount of income. PEPSICO INC has
improved earnings per share by 5.7% in the most recent quarter compared to the
same quarter a year ago. The company has shown a trend of positive earnings per
share growth over the past two years. We feel that this trend will continue
since the price of the stock has increased steadily over the past year. The
stock is also very consistent, currently closing at $83.62 and having a 52-week
high of $87.06, and a low of $77.01, very close numbers. During the past fiscal
year, PEPSICO INC increased its bottom line, or net earnings, by earning $4.32
versus $3.92 in the prior year. This year, the market expects an improvement in
earnings of $4.52 rather than $4.32.
The return on equity, or the profit the
company generates with the money shareholders have invested, has improved when
compared to the same quarter a year prior. When compared to other companies in
the beverage industry and the overall market, PEPSICO INC's return on equity
exceeds that of the industry average and significantly exceeds that of the
S&P 500. Additionally, the gross profit margin for PEPSICO INC is very
high, currently at 56.50%.
3. JP
Morgan Chase & Co. is a good company to invest into. JPM has a low trailing
P/E of 13.24 and an even lower forward P/E of 9.08 which indicates that the
company is undervalued. Its EPS is nearly double of the industry’s average
which means each share makes double compared to the competition’s. The one year
target estimate is nearly ten dollars more than the present price of the stock
which means that stock analysts are positive and that the stock price will go
up. The Price/Book ratio is low which means that the book value is high and the
assets of the company still hold a lot of value. Finally, the dividend is 2.70%
which is relatively high and since the dividend is the value of holding a
stock, people will want to purchase this stock making the price go up in the
future. (source)
4. Transocean
Ltd. is a good company to invest into. The Price/Earning Ratio is lower
than the industry’s average which indicates that the stock is undervalued. The
Price/Book Ratio is low which means that the company’s assets have not been
depreciated much and still hold a lot of value. The Operating Margin is higher
than the industry’s which means that the profit margin is higher. The Current
Ratio is in good range which means that it has good liquidity. The Liabilities
to Total Assets Ratio is lower than the industry’s which means that the company
has less risk. Also, the dividend payments are high and will pull more
investors in. (source)
5. Microsoft
has a low P/E of 14.58 which indicates that it is undervalued. It has a high
dividend of 2.8%. It has a Beta of 0.69 making it less volatile than the
overall market. Its One Year Target Estimate is higher than the current price
which means that analysts favor this stock to go up. It has a high Operating
Margin of 33.55%. The Forward Annual Dividend Yield is higher than the Trailing
Annual Dividend Yield meaning that the dividend payments will increase,
attracting more investors. (source)Not to Buy
1. Most
stocks that are related to internet appliances like Facebook, or Yahoo, are
considered to be unreliable and very risky. Many of them lead to loss of
money for the stockowners who had bought shares. One of these companies is
Twitter, which has been proven by history to be unreliable and fluctuate
rapidly in terms of success rates. MSN recently published an article on their
website, which compared Twitter to MySpace, which was a well-known wreck of an
investment. The article states that the reason being is that it is not as
famous as people make it seem to be. The social network Google+, which is often
criticized for being unpopular, has 540 million users, which is twice as much
as Twitter’s 241 million users. Another indicator of how poorly Twitter is
doing is its P/E ratio, which is 4600 for the year 2014. That shows just how
poorly twitter is doing, and how absurdly overpriced the stock is at this
point. Google’s P/E is 13, and many people complain about the value of their
stocks. That is why Twitter is a stock to NOT buy. (source)
2. Time
Warner cable has been decreasing in terms of stock price for the past 12 years,
and most people believe that it won’t rise again. Its P/E value trailing from
the last 12 months is currently 15.97, indicating that it is also slightly
overpriced. Its yearly high is about $70, and it is currently worth about $64,
which means it’s closer to the yearly high. However, even if that is
the case, the amount of money you make as a profit you would make from this
stock is not significant enough to mention. However, unlike the other stocks we
talked about, Time Warner Inc. is likely to change. The prices have been going
up the last couple days, which may be due to the fact that a competitor,
Cablevision (optimum), has been going down in price, and has been significantly
worse than it used to be. So although as of now Time Warner Inc. is not a
safe purchase, that may be likely to change depending on how the other service
providers’ stocks will prove to function. (source)
3.
Even though most stocks that are involved in technology are very safe to buy,
Sony’s stock has been going down for the past 8 years. After reaching a
highpoint in price in the year 2002, it suffered a massive drop in 2003, and
has been consistently going down. In 2014, Sony released the long awaited
“PlayStation 4”, which many speculated would help the stock of Sony. However,
the speculations were inaccurate. Sony is a 20 billion dollar company, and just
because one segment of the company is doing well, does not mean the same for
the rest of the company. Another reason why Sony stocks are so unstable is
because of the Yen. Because of the fact that Sony is a Japanese corporation,
the yen has to compete with the dollar, and since the yen has been consistently
dropping in value compared to the dollar, it has made monetary transactions
from the U.S. much less profitable for the company as a whole. For these
reasons, Sony is an unstable stock to purchase as of right now, and unless
major changes are provided for the company, it will not be likely for the stock
condition for Sony to change in the near future. (source)
4. Currently,
we believe that we should not buy the J.C. Penney stock. The average
twelve-month target price among brokers that have issued a report on the stock
in the last year is $9.43, however, shares of the J.C. Penney Company opened at
$8.92 on Tuesday. J.C. Penney Company has a one year low of $4.90 and a one
year high of $19.63, which is a large gap, meaning that it would be a great
risk to buy. As of March 14th, there was short interest totaling 119,926,249
shares, a decline of 8.4% from the February 28th total of 130,861,833 shares.
J.C. Penney Company (NYSE:JCP) last issued
its quarterly earnings data on Wednesday, February 26th. The company reported
$0.68 earnings per share for the quarter, falling short of the consensus
estimate of $0.76. The company had revenue of $3.78 billion for the quarter,
compared to the consensus estimate of $3.94 billion. Additionally, the
company’s revenue for the quarter was down 2.6% on a year-over-year basis. On
average, analysts predict that J.C. Penney Company will post -$2.97 earnings
per share for the current fiscal year. Reasons for the stock’s failure may stem
from the fact that its more successful competitors, other retail stores such as
Target and Macy’s, either offer cheaper products, or price promotions. Overall,
if our group were to buy the J.C. Penney stock, we would simply lose money.
5.
Facebook is a stock you should not buy. It has a P/E ratio of 93.27
which is extremely high and indicates that the stock is extremely overvalued
and since every stock price eventually returns to its intrinsic value, the
stock price of Facebook should significantly decrease at some point in the
future. Earnings per share are only .61 which is far below the industry average
of 1.13 meaning that each share simply makes less than the competition’s shares.
The PEG ratio is relatively high meaning that the expected growth rate for the
next five years of the stock is low. The current ratio is very high which indicates that the company may not be efficiently using its current assets or its
short-term financing facilities. The Beta is 1.77, making the stock very
volatile and making such and investment very risky. If the market goes down,
this stock will go down much more because of its high volatility. Finally, the
company pays no dividends which is a huge deterrent for investing into the
stock, and because the company is not constantly creating or innovating new
products, it is very questionable as to what exactly they are doing with the
profits. The board of directors are clearly not stockholder friendly. (source)
Terms
P/E
ratio: the price divided by the earnings; the higher the P/E the lower the
earnings per share; a good stock has a low P/E
Trailing
P/E: the current P/E based on the past 12 months
Forward
P/E: prediction of the P/E in the next 12 months
PEG
ratio: the PE divided by the expected growth rate; the smaller the PEG the
higher the expected growth rate
Beta:
the volatility of the stock
Volatility:
the way a stock reacts compared to the market change
EPS:
Earnings per share
Price/Book
ratio: Price over Book value
Book
Value: the value of a company’s assets
Operating
Margin: measurement of what proportion of a company’s revenue is left over
after paying for variable costs of production
The
Current Ratio: assets divided by liabilities; the higher the ratio the better
which means less debt and more assets hence the company is more liquid
The
Liabilities to Total Assets Ratio: Liabilities divided by assets; the lower,
the less risk of not being able to pay off debt
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