Simple Steps to Researching Value Stocks - The Dawning of Day
- Ogechi Aguma
- Jun 26, 2020
- 4 min read
Updated: Jan 12, 2024
“It is during our darkest moments that we must focus to see the light.”
- Aristotle Onassis
The year 2020 - It’s half the year now, June 2020, and the expression ‘wow what a roller coaster ride’ is an understatement.
COVID-19 pandemic hitting the global economy; unemployment decisions letters on the desks of company management teams with many already handed out, global deaths from the virus peaking over 485,000 and climbing, social distancing limiting economic recovery with airlines, amusement parks, resorts, hotels all bleeding profits. Added to the dismay, racial inequality walking out of the shadows.
The twists, turns and shock on the Balance sheets, Cash flow management and Income statement on businesses are overwhelming. The luring ‘stimulus’ from governments globally have driven companies into the clutches of debt, just to survive.
The glimpse of sunset feels unreal, the patience of it happening is running out. Staying focused is strength-tested everyday.
Coincidently, the irony of life digs its hills - ‘in darkness there are always sparkles of light’. Like finding diamonds. Rare isn’t it.
Businesses and business models begin to adapt. A new wave emerges on how to cut rough edges and polish lucrative strategies to glitter with left over profits. The glitter begins to yield growth in darkness.
Sunset is coming
The global market will rise above its current challenges. Financial health will be restored as proven over time. So, to be well positioned and invested before this happens is ones wisest move and advantage.
Investing and holding steady unto value stocks is the key. Seeking and researching new and sustainable businesses during this period, will only yield great returns as the economy recovers.
How rewarding it will be to defend this ‘focus’ long enough until dawn breaks, bringing sustainable light, illuminating the value of your new found diamonds.
How to research for Value Stocks
Below are some of the steps I deploy to kick off my research for value.
1. Look for stock names you know that fits the list below.
Business with solid products (Software, hardware, services etc).
The new future business model
The old past but still solid into the future. Innovative businesses that adapt to the present.
A reliable online stock broker platform is the first step. The illustration below, is using IG’s platform.
Only as an example:
Case Company: Microsoft Corp.
2. Look at its stock charts
Performance over the past years. Look for growth, year on year. Open the daily chart, then check out the montly chart.
3. Look for current dips (discount) and investigate why
Present dip in the stock markets, March 2020 is due to COVID-19. How much recovery is left? Hunt for sales!
Remember if a company dips 50% and you buy at that price, if it regains its original price, it’s a 100% profit.
As you can see Microsoft is out of the woods. March lows $140, now almost $200.
4. Take a look at its Market Data.
Return on investment, Dividend yield, Price/Earnings ratio. Good multiples should be your focus.
Look at its Financials
- Income Statement (in positive territory)
- Balance sheet (in positive territor)
- Cash Flow. i.e Free cash flow should be positve (the difference between Operating cash - Capital Expenditure), indicates enough funds to run its business and pay equity holders.
Watch video on where to find it - if using IG mobile platform.
You can also use other resources to get these data. Read below.
5. Source Analysts sentiments on the stock and similar data as above
Data can be gotten from other sources. Helpful sites below. Remember the decision to buy is yours.
6. Book Value calculation Spreadsheet
Use this simple spreadsheet to workout its Book Value per Share (BVPS) or create one. If the BVPS is trading less than 2x it’s current share price, its up for consideration.
Join us and request a FREE link access to the spreadsheet via the website chat box.
7. Value Investment Spreadsheet
You can use the Free version of Value Spreadsheet by Nick Kraakman to check the Intrinsic value of the company. Just insert the Ticker (companies trading name abbreviation) - MSFT and it will workout the Intrinsic Value of the company with conservative set criteria.
Free Version of Value Investment Spreadsheet
8. Checkmate your decision with your intent - is this investment Medium or Longterm investment?
Remember before dawn breaks (global economic recovery) you need to be well placed in the market. It might seem daunting, but you can do it. Just take the first step.
Keep your focus and you will see the opportunity. Keep sourcing for the right stocks and you will profit.
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
-Thomas Edison
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Recommended online Brokers
Hargreaves and Lansdown. Take a look at their fees.
Degiro - Especially for those living in Europe for examples Portugal. Take a look at their fees.
Bamboo App - Especially for those in Africa.
Do your research.
Counsel
Always try to buy stocks when they are on SALES! (basically when there is a dip in the share price).
Drip feed your investments. Share prices vary day to day especially in times economic crisis, high volatility becomes a common theme. In the same vain, be watchful of purchasing fees.
Investopedia is a great website to help you with understanding almost any financial terms and definitions.
Disclaimer
Note: Shares and Investment Lifestyle website is only for information purposes. Please do your detailed research. Any investment decision taken will solely be your responsibility. You can get back more or less capital than you invest.
Great stuff. good step by step to give even a novice a good base for investing. well done