How do we know when a stock is 'on sale' as Phil Town mentioned on CNBC's The Millionaire Inside ?

Question

Please provide example.

Answer 1

When the talking heads on CNBC talk about a stock being a good value, they are referring to PEG ratio, which is the PE to growth ratio.

For example, HON has a PE of 20. Per http://moneycentral.msn.com/investor/invsub/analyst/earnest.asp?Symbol=hon
the growth expectancy for this year is 22%. The PEG for this year is 20/22=0.9. For next year its 20/12=1.6.

PEG<1 is very good and <1.5 is good. Anything >2 is bad.

Of course these are estimates and they change often based on expected earnings.
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Answer 2

Use Yahoo Finance , VectorVest, IBD, ValueLine or similar tools to analyze the history of a company's stock price as compared to it's peers. Valuation metrics such as PE, PEG, EBITDA, Margins, EPS are very good indicators to analyze but only show past, not future econometric figures.

Answer 3

If the PE is much lower than its peers. If its dividend is much higher than it's peers. If it's taken a significant dive (vs. its peers).

This is called Value Investing. This means you can make good money when the stock recovers, or lose your shirt as it continues to decline.

I prefer Value Investing to growth investing. I do both. I have made some good $$$ this way.... but like any other stock, it can still go down. Sometimes its like catching a falling knife.

Answer 4

Generally stocks are on "sale" for the same reason products in a store are, because no one wants to buy them. Over time your better off buying market leaders not market laggards. They are market laggards for a reason. As far as people on tv telling everyone how to get rich... some advice is fine but most of the time they are getting rich not on what they are telling people what to do but on selling books cd.s ect on how to get rich .... The old saying goes .... the best way to get rich is to sell a book on how to get rich.