Stock Market Investing LESSON - Buying Value

InvestorEducation / Learning to Invest Nov 27, 2021 - 06:40 PM GMT

INVESTING LESSON - BUYING VALUE

Remember folks when investing one is not trying to buy the bottoms, one is trying to buy VALUE! There are many metrics for measuring value but for most investors the easiest way to measure value is the P/E Ratio, it is simple and easy to determine and virtually every investment site features the P/E ratios for stocks. Though from my experience many of the sites posted P/E ratios tend to out of date or inaccurate i.e. I calc virtually all of the PE ratios myself by dividing the share price by the earnings per share for the last 4 quarters and that is how one gets the P/E ratio i.e. how many YEARS it would take for the corporation to EARN it's share price.

Now there are many more metrics than that which can be just as important such as whether the corporation printing it's own shares Powell style, Brrrr, so shareholder dilution is another metric I watch among 15 that go towards generating the EC ratio, a quick way to see how expensive or cheap a stock is.

Sitting here on my investing perch I can tell many don't get this fundamental fact about investing that it is valuation (whatever the metric one uses) which is the most important element to investing and NOT the PRICE for improving valuation means one can remain invested in a stock that doubles, quadruples or X10's for a decade, as the valuation keeps pace with the price. Conversely a stock price that has run away from it's valuation is a ticking time bomb that could lose 98% of it's value has happened to MOST tech stocks during the dot com bust.

The only way to survive investing in the long-run is to BUY under valuation and SELL over valuation. However, I am getting the impression that most investors seek to do the opposite because a stock becoming better value invariable involves a drop in it's price (Intel). Whilst a stock becoming over valued invariably results in the stock price rising to ridiculous heights. So an inexperienced investors looking at the two entities see's the stock that is falling as bad whilst the stock that is soaring as good to FOMO into/

Instead in this example buying Intel at $50 is infinitely lower risk than buying say Nvidia at $300 on virtually every metric!

Intel's PE according to my calculations is 8.6 and it's EC ratio is 10. Nvidia is 106.4 and 373. What am I going to buy Intel or Nvidia?

Yes, I know Nvidia is experiencing exceptional earnings growth with its last 4 quarters of earnings totaling $2.81, so take the current stock price of $300 and divide that by $2.81 and one gets a P/E of 106. In fact the EPS has fallen from 3.5 to 2.8 because Nvidia is a rampant share printer brrrr. Lets say Nvidia increases its profits by 30% per annum for the next 2 years that would Put Nvidia's PE at about 52 in 2 years time IF they do not print more shares and IF the stock price does not go up. Now during that time period what if Nvidia misses it's earnings expectations? Would the stock price crash by 10% like Intel did? No, 20%? 30%? 40%? More like 50%!

And that is the risk one is running with the likes of Nvidia trading on a PE of 106. Where if investors think that the growth is not going to materialise then the stock price will not just crash but collapse!

And then we have Intel, which was trading on a PE of about 11 that crashed by 10% to a PE of 9. What's gong to happen when it puts in a very good quarter? It's going to DOUBLE in price! Trade on an earnings multiple north of 20.

So what does one accumulate?

A stock that is skating on thin ice, where one bit of bad news and it's game over for all those invested on a P/E of 100 for many years.

Or a stock that is trading as though it has ZERO chance of delivering good earnings growth and yields 3% and is quietly buying back its own shares because it knows they are CHEAP! Usually companies buy their own shares because they know how cheap they are! NVIDIA BRRRR PRINTS shares because it knows the FOMO fools will buy as much as it can print!

The best time to Buy Nvidia in recent years was during most of 2019 as the following chart with the P/E over laid illustrates Which is why I was so bullish on the stock at that time just as I am bullish on Intel today.

Those invested in Nvidia are going to feel the burn when Nvidia misses an earnings report, they will wake up one morning and see that their Nvidia stock holding just got nuked!

Nvidia's next earnings report is on 17th November where it will once more be a case of Nvidia investors playing russian roulette, maybe they will get lucky and dodge another bullet?

Both are great corporations that are at the core of the unfolding AI mega-trend , just one is under valued and the other is very over valued.

This analysis is an excerpt from my latest extensive analysis - AI Tech Stocks Portfolio Updated Buying Levels and Zones as Financial Crisis 2.0 Continues Brewing

Contents:
Financial Crisis 2.0 Checklist
The China Syndrome
Stock Market Begins it's Year End Seasonal Santa Rally
Stock Market Trend Forecast Current State
INVESTING LESSON - BUYING VALUE
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock
INVESTING LESSON - Give your Portfolio Some Breathing Space
INVESTING LESSON - Give your Portfolio Some Breathing Space
How Stagflation Effects Stocks
INTEL Bargain - 15.5% Discount Sale
Why Intel stock price dropped 15%?
FACEBOOK - 10% DIscount
IBM - 20% Discount
Amazon - 5% Discount
APPLE 4% Discount
AMD $136 on Route to $200
TSMC - $117
Microsoft $336
Google $2980, PE 28.7, EC 30.
Nvidia Leaves planet Earth - $299, PE of 106
Heads Up on NEW Potential Tech Stocks
AI Stocks Portfolio Updated Buying Levels
AI Stocks Buying Plan B
FREE TRADE the Perfect Stocks and Shares ISA?
FREE SHARE FROM FREETRADE
High Risk Stocks Brief
Crypto's 20% Discount Event
Bitcoin Trend
Palladium Brief

The whole of which was first been made available to Patrons who support my work. So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $4 per month. https://www.patreon.com/Nadeem_Walayat.

Also access to my recent analysis that maps out what I expect to happen during the next big crypto bull market is only just beginning for most crypto's

Bitcoin NEW All time High is TRIGGER for Future Alt Coins Price Explosion

Contents:

Bitcoin & Ethereum 2021 Trend
Crypto Portfolio Current State
The BITCOIN NEW ALL TIME HIGH Changes EVERYTHING!
Ravencoin to the MOON!
What am I doing?
How to Invest in Crypto's
Bitcoin 2022 Price Target
Ethereum 2022 Price Target
Ravencoin 2022 Price Target
Cardano (ADA) 2022 Price Target
Chainlink 2022 Price Target
Pokadot 2022 Price Target
Solano 2022 Price Target
Litecoin 2022 Price Target
Arweave 2022 Price Target
Stellar Lumens - XLM 2022 Price Target
Eth Classic 2022 Price Target
Vechain 2022 Price Target
EOS 2022 Price Target
Earnings Noise Delivers INTEL And IBM Buy Opps
Facebook and Google Could CRASH 10% Post Earnings Day
High Risk Stocks Swings and Roundabouts

For crypto trading and investing see Binance for 10% discount on trading fees - Discount Code LZ728VLZ

For managing your crypto's see Coinbase

For GPU mining check out Nicehash (affiliate links).

And access to why inflation will be far from transitory, batten down the hatches for what's to come-

Protect Your Wealth From PERMANENT Transitory Inflation

Best Real Terms Asset Price Growth Countries for the Next 10 Years
Worst Real Terms Asset Price Growth Countries for the Next 10 Years
The INFLATION MEGA-TREND
Ripples of Deflation on an Ocean of Inflation!
Stock Market Trend Forecast Current State
US Dollar - Stocks Correlation
US Dollar vs Yields vs Dow
Stock Market Conclusion
34th Anniversary of the Greatest Crash in Stock Market History - 1987
Key Lesson - How to REALLY Trade Markets
AI Stocks Portfolio Current State
October Investing Plan
HIGH RISK STOCKS INVEST AND FORGET PORTFOLIO
Can US Save Taiwan From China?

And my extensive analysis of Silver concluding in a trend forecast into Mid 2022.

Silver Price Trend Forecast October 2021 to May 2022, CHINOBLE! AI Stocks Buying Plan

UK Inflation Soaring into the Stratosphere, Real rate Probably 20% Per Annum
The 2% Inflation SCAM, Millions of Workers take the Red Pill
Silver Previous Forecast Recap
Gold Price Trend Implications for Silver
Silver Supply and Demand
Silver vs US Dollar
Gold / Silver Ratio
SILVER Trend Analysis
Long-term Trend Analysis
Formulating a Trend Forecast
Silver Price Trend Forecast October 2021 to May 2022
Silver Investing Strategy
SIL ETF - What About Silver Mining Stocks?
Gold Price Trend Brief
Why the CCP is Living on Borrowed Time and Needs a War
Understanding the Chinese Regime and What it is Capable Of
Guanxi
Chinese People do NOT Eat Dogs Newspeak
CHINOBLE! Evergrande Reality Exposes China Fiction!
AI Stocks Portfolio Investing Strategy
AI Stocks Portfolio Amendments
AI Stocks Portfolio Current State
October Investing Plan
HIGH RISK STOCKS INVEST AND FORGET PORTFOLIO
Why China Could Crash Bitcoin / Crypto's!
My Next Analysis

Also my recent extensive analysis on the prospects for the stock market into Mid 2021 see - Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast Sept 2021 to May 2022

Contents:

Stock Market Forecast 2021 Review
Stock Market AI mega-trend Big Picture
US Economy and Stock Market Addicted to Deficit Spending
US Economy Has Been in an Economic Depression Since 2008
Inflation and the Crazy Crypto Markets
Inflation Consequences for the Stock Market
FED Balance Sheet
Weakening Stock Market Breadth
Why Most Stocks May Go Nowhere for the Next 10 Years!
FANG Stocks
Margin Debt
Dow Short-term Trend Analysis
Dow Annual Percent Change
Dow Long-term Trend Analysis
ELLIOTT WAVES Analysis
Stocks and 10 Year Bond Yields
SEASONAL ANALYSIS
Short-term Seasonal Trend
US Presidential Cycle
Best Time of Year to Invest in Stocks
2021 - 2022 Seasonal Investing Pattern
Formulating a Stock Market Trend Forecast
Dow Stock Market Trend Forecast Sept 2021 to May 2022 Conclusion
Investing fundamentals
IBM Continuing to Revolutionise Computing
AI Stocks Portfolio Current State
My Late October Stocks Buying Plan
HIGH RISK STOCKS - Invest and Forget!
Afghanistan The Next Chinese Province, Australia Living on Borrowed Time
CHINA! CHINA! CHINA!
Evergrande China's Lehman's Moment
Aukus Ruckus

So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $4 per. https://www.patreon.com/Nadeem_Walayat.

My analysis schedule includes:

How to Profit from the Metaverse
UK House Prices Trend Analysis, including an update for the US and a quick look at Canada and China - 65% done
How to Get Rich! - 90% done - This is a good 6 month work in progress nearing completion.

US Dollar and British Pound analysis
Gold Price Trend Analysis - 10%

Again for immediate access to all my work do consider becoming a Patron by supporting my work for just $4 per month. https://www.patreon.com/Nadeem_Walayat.

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Your Crypto's accumulating analyst.

Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 35 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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