EARNINGS GROWTH TRANSLATES INTO STOCK PRICE APPRECIATION!
Once those earnings begin to significantly slow down, the growth investor should move on and leave the stock to the value investors. Sadly, a large or mega-cap stock that is now growing at a single-digit annual pace next enters into a new realm, that of a widely held stock.
That is not to say that one cannot make money in a widely held stock, especially if you can buy them when they are severely beaten up, but I prefer to shop in other aisles of the stock market. I prefer to own stocks that possess both performance and value.
If we buy stocks just because of performance and ignore value, we are
investors. I think that we found out a lot about the importance of valuation back in the Nasdaq crash of 2000-2002. We also learned that same lesson again in recent years in the housing market. Value is very important.
I have found however, that many so-called grossly undervalued stocks are nothing more than value traps. What is wrong with combining the best of performance investing, but also paying attention to value? Let me cite
(PII - Get Report)
as an example:
I wrote about this rugged American-made stock back in early December of last year. The stock was trading at $59.80. The
had very few page views, I was after all not writing about Cisco. The stock closed at $80.00 on Friday, but it still exhibits the best of worlds, performance plus value.
You can easily see how the 1, 3, 5, and 10 year performance has clobbered the S&P 500. You can also see that despite the recent big advance in share price the stock still has a favorable PEG ratio of 1.05. Also, when I extrapolate out current earnings at the growth rate estimate of the analysts, and apply a reasonable multiple, I still see significant upside potential in the stock over the next five years.
It is your choice, you can fill your portfolio with names that are familiar and widely-held, or you can dig a little bit underneath the surface and find stocks that are still in the prime of their lives. Sit back and take a big gulp of fresh air, because in future articles I am going to do my best to point you in the right direction of the BEST STOCKS NOW!