Revenge Of The Value Investors

With surgical precision, conservative fund managers have carved out the best stocks from the body financial.

the long run. You might even belong to an investment club and be looking for ways to win other members over with your stock picks. Whatever your angle, we’ve got one thing in mind: we want to show you how investment experts screen for stocks and give you the tools to pick companies on your own.

To start working with the stats and tips here, we’ll refer you to “Screening for Investment Gold” (October 1998). There, we listed spots on the World Wide Web where investors could sift through the nearly 10,000 publicly traded stocks to find the picks that fit their goals. In this article, too, we’ll mention some Websites to help you get started.

While there are other stock investing schools, the two most prevalent ones are “value” and “growth.” On Wall Street, the two represent opposing philosophies.

First, there’s value. Portrayed as the more conservative and staid of the approaches, value stock picking hinges on finding companies mired at a price below their true worth. A value portfolio manager will then buy the underappreciated shares, confident that the market will one day realize that it has overlooked a good deal. At that point other investors will bid up the price of the value stock, while those who bought the shares at bargain-basement levels will realize a greater profit.

The growth school, on the other hand, targets companies whose profits are booming. Growth managers will tell you that a company that can increase its earnings faster than the market will attract investors, who will in turn pump up the price of the growth stock in question.

“I’d say growth investing, or betting that a given company will continue to grow earnings at a 50% rate year after year, is a lot like driving your car down the street at 150 miles per hour,” says David J. Braverman, a senior investment officer with Standard & Poor’s in New York. “If you’re sober, chances are you won’t be killed, but your luck might run out one day.

“Value is driving your car at 40 miles per hour,” he adds. A value fan, Braverman says that value investing, while a slower path to profits, has the potential to lead to similar gains over time. “Perhaps a little more boring, but ultimately a safer way to get to your destination.”

If you read books on investing or leaf through articles in the financial press, you’ll find that value stock picking is typically compared to bargain hunting of a sort. First, value managers and analysts will look for cheap stocks. To help gauge what a company’s shares should fetch, value managers will look at its price-to-earnings multiple or P/E, a figure calculated by dividing a company’s share price by its earnings per share. Their thinking is that by buying companies at a P/E below that of the S&P 500, they’re digging up cheap stocks that will more likely cash in when the rest of the stock market realizes that value shares are worth more than their

Pages: 1 2 3 4 5