This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Dykstra: Focus on Value Stocks

Stocks in this article: AA NE GOOG

I heard the sad news last night that legendary Phillies broadcast announcer Harry Kalas passed unexpectedly yesterday as he was getting ready to do what he loved best: Call a game. Harry was a great guy and a terrific broadcaster. They don't make them any better.

Harry will be missed by the team, the fans and myself. He's been a mainstay at Phillies games since 1971. That's quite a track record for anyone.

The track record for my deep-in-the-money options trading system is now 100-1, with Monday's $1,000 win on Alcoa (AA - Get Report). To pick winning stocks, I use a lot of measures to judge whether shares are truly value-priced.

The most important metric I use is the price-to-earnings ratio. But another measure that clarifies the relationship of a stock's going price to its profitability is price-to-cash flow.

Earnings per share numbers -- particularly the ones excluding special charges -- can be smoothed by management from quarter to quarter. To counter that, investors can use the P/CF ratio to verify that a stock is a true value name.

You can look up the P/CF ratio for stocks on various financial services sites, or calculate it yourself. I get P/CF by dividing the stock's market cap by last year's operating cash flow numbers, which are found in the company's most recent cash flow statements.

Let's look at the ratios for a few companies to get a handle on the variation in P/CF ranges. We'll start with a value-oriented stock. On Monday, my pick for my DITM system was Noble Corp. (NE - Get Report), an oil-services company whose price has been pummeled despite expectations of profit growth this year. I liked Noble's return on equity (32.5%), price-to-earnings-to-growth ratio (0.48), and low PE (4.2) compared to its competitors.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters