With the markets recently hitting record highs, it is more important than ever to be on the lookout for good values in the markets.
Assigned a stock a value is not an easy thing. The most commonly used metric for determining a stock’ value is its earnings per share ratio. The lower the P/E the better, but a low P/E on its own is not enough to consider a stock a good value.
A general rule of thumb is that a stock is fairly priced when it trades with a P/E of around 20. But you have to look deeper before buying a stock simply based on its P/E value.
There are some instances where you can find a stock that has a much lower P/E of 20 that still does not appear to be an attractive value. If, for example, a stock has a P/E of 15, but earnings are expected to fall by 10% during each of the next two years, it is still not a great value.
On the other side of the coin, if you find a stock with a P/E of 35, but earnings are forecast to rise 20% in each of the next two years, the stock is attractive.
With the market’s trading near record highs, interest rates on the rise, and uncertainty surrounding President Trump’s economic agenda, and the market getting ready to enter into another earnings season, value hunting is more important now than ever.
Here are five great buys for value hunters.