Posted on 07/14/2002 10:44:47 AM PDT by MeneMeneTekelUpharsin
WASHINGTON (Reuters) - With many stocks selling at prices that are mere fractions of what they were a couple of years ago, it seems like a good time to pick up bargains. But many analysts keep talking about how stocks remain overvalued. So, how can you tell when a low price is a bargain and when it's not?
The first place to look typically is the earnings, but that's not encouraging right now for reasons that are valid and others that are less so. Stocks still look expensive when their share prices are divided by their annual earnings per share. That ratio, called the price/earnings, or p/e, was around 15 from 1950 to 1983, today it stands at 26. So you could still lose a lot of money investing in low-priced stocks were they to fall to historic values.
But recessions are usually a bad time to judge by p/e alone. Earnings are suppressed. A solid company experiencing poor sales could have a high p/e, but an economic recovery would make those sales pop and the p/e drop. It's best to look beyond just the p/e in determining the value of a stock, and it's best to let a professional help you with the hard math.
Here are some Web sites that attempt to value individual stocks, and how they do it. You will soon see that even experts do not agree on what individual companies may be worth; smart investors will gather as much information and advice as possible and then make their own calls.
-- ValuePro.net (http://www.valuepro.net). This is an educational and useful site. Key in a ticker symbol, and it will offer up 20 data points and calculate what the company's shares are worth, based on their expected cash flow. It can be a tough yardstick: AOL, selling at $14.50 a share, has been losing money lately and comes up as intrinsically worthless, though surely it's worth something.
On the other hand, General Electric, selling at $29 a share, is valued at $38 on this Web site.
-- StockWorm.com (http://www.stockworm.com). Just to prove that reasonable minds may differ, this site shows valuations for GE and AOL that are very different from the first site's. StockWorm looks at several different methods of estimating value, such as comparing a company's p/e to its earnings growth rate, and calculating the risks that a company's shares present. It averages its various values, and his week came up with $20 for AOL and $18.66 for GE.
-- ValuEngine.com (http://www.valuengine.com). This site gives you a lot of information, though it's not quite clear how it got there. The site's methodology for valuing stocks is a business secret, developed by Yale University finance professor Zhiwu Chen. It attempts to project price as well as assess value. AOL is really worth $41.16 it says, though it expects the stock to drop for six more months -- down to $13.47 -- before it starts to go higher.
That's pretty specific forecasting! Even weirder is its GE forecast: It says the company's shares have an intrinsic value of $45.84, but that the share price will be lower than it is today for at least five years.
-- RiskGrades.com (http://www.riskgrades.com). This site is a little bit different. It assigns grades to individual stocks -- or whole portfolios -- designed to quantify the risk that the investment will drop in price. The higher the grade the higher the risk. A moderate, balanced portfolio would have a grade of about 50. Any individual stock would have a higher grade, say 100 as a baseline, because an individual stock is riskier than a portfolio. The site currently gives AOL a grade of 356 and GE a grade of 197. The bottom line? They still look kind of expensive.
Quite a few others that sell badly needed products are also cheap. Some of the market malaise is Democrats stoking the fires of fear to bring the market down and discredit Bush. Fine with me, I'm buying.
Two basic factors affect the market, do they not? Fear and greed are the basic driving forces between market swings. Long term investors do not consider either one. They buy and hold for the long term. Even if it drops in the long term, with splits, dividends and overall appreciation, they still have significant gains.
A lot of people have become afraid for no reason. I would appreciate it if a lot of folks would panic and start selling Wal-Mart stock until it drops to around $20 a share. Thanks in advance... ;-D.
Good luck! Calpine has borrowed more money than it can ever pay off legitimately.
Calpine has STOPPED building power plants. They've announced that they've stopped and a friend who works construction for them has told me they've stopped. So, they're going to have a one time charge for turbine orders cancelled (so what) and then it will be pure cash flow and rapidly reducing debt.
Book mark this and see if the stock doesn't come back. If it does, you won't be anywhere to be found. If it doesn't, I'll still be here for your commentary about how I was wrong. Well?
Click here for present day California power problem.
People are NOT going to just turn off all items using electricity...California will buy power when it needs it. They'll buy it from suppliers like Calpine. Power is a necessity.
It is extremely unlikely that Calpine's power plants will close. However, there is no assurance that Calpine will remain the operator, because they most certainly could go bankrupt.
You need to assess the overall health of a company, not focus solely on whether they provide a needed product. I think the management of Calpine is horrible, and I have expressed my recommendation against purchasing that stock here for several months.
You may be picking up this stock at a bargain price if the company's fortunes pick up. For your sake, I hope they do.
Why? Could you elaborate?
Calpine was the first company to renegotiate its contracts with Davis, after Davis was criticized for paying too much. A company that willingly gives up shareholder value in order to suck up to the likes of Davis must think that its political agenda is more important.
Liberals run companies into the ground. Look at what Ford Motor Company's CEO has done to that company since he took over.
Look at what Bill Clinton's biggest contributor, Bernard Schwartz, has done for Loral.
The political leanings of management don't matter unless it affects the way they do business. With Calpine, I think they do.
I would have to admit with that type of reasoning, maybe you have a point. However, I believe the company is going to do well (have other info). And, you must admit, power is a necessary commodity. Some things are worth taking a chance on...this is mine.
Maybe they didn't have too much choice. Government can twist the arm pretty tight. Home Depot cut off all business with the Federal Government but their share price is still suffering. A huge number of companies are suffering right now regardless of political affiliation.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.