Who knew you should invest in good companies?
While tongue-in-cheek, this is actually one of the more pressing issues when it comes to investing.
Many investors tend to trade on the price action of a stock, buying and selling based on how the share prices have moved. This isn’t necessarily a bad idea, but there’s a lot more information out there. In fact, often a company’s share price is a better indication of what happened yesterday than what will happen tomorrow.
“Most tech stocks look quite expensive again," Real Money's Paul Price wrote recently. "Large-cap companies in general are near their highest valuations in many years. The climate appears remarkably like it did back in March of 2000."
Price continued: “At that time, tech and internet stocks were as overvalued as they'd ever been. Most large-cap companies were also significantly overpriced. Their gains were due more to price-to-earnings expansion than to earnings growth."
At the same time: “Low P/E ‘value’ stocks were almost totally ignored. Who needed them when the Invesco QQQ (QQQ) - Get Free Report, Oracle (ORCL) - Get Free Report, Microsoft (MSFT) - Get Free Report and even companies like Home Depot (HD) - Get Free Report and Walmart (WMT) - Get Free Report were surging each and every day at higher and higher valuations?”
The point, he writes, is that investors let themselves be blinded by the high share prices of major companies. In the process they missed some of the most important indicators on the market, like the P/E (Price-to-Earnings ratio) of less headline-grabbing assets.
By looking for companies with strong P/E indicators you can find the companies that are poised to succeed tomorrow, the ones that haven’t yet jumped in price.
And this is particularly relevant to investors right now.
"Jettison any personal holdings that are clearly pricey and swap into names that are undervalued. Cash in gains on index funds and go back to only keeping money in stocks likely to go up even if ‘the market’ goes down.”
Read on at Price’s space over at Real Money to see 22 stocks that he thinks currently meet this standard of being undervalued and overlooked.