Stock Selection Method: Successful Value Investors Choose 5 Laws

Relying on the above philosophy, my stock selection criteria can be reduced to 5 points:

P / E ratio

Today, the annual yield of the 5 year deposit is 5.56%, and the annual yield of the stock should be higher than 5.56%.

That is, if a stock's earnings per share is 0.5 yuan, the price of the stock is below 0.5 yuan 0.056=8.93 yuan, which is reasonable.

Divided by 8.93 yuan by 0.5 yuan to get 17.86, this is the price earnings ratio of the unit, that is, the market price per share relative to earnings per share.

The lower the P / E ratio, the better, because it reflects the static basic value of stock (assuming earnings per share will remain unchanged).

However, the earnings of listed companies are constantly changing, so valuation will also change on the basis of basic values.

People's expectations of future earnings changes of different listed companies are different, and the reasonable price earnings ratio will be very different.

If the market expects the company's future earnings to grow, the share price will rise ahead of schedule and the price earnings ratio will rise.

Market rate

The market price ratio and the P / E ratio are equally important. This index reflects the multiple of the stock market price relative to its net asset value per share, and the lower the better.

For example, the net assets of Yantian port and Yingkou port in 2006 were 2.59 yuan and 4.40 yuan respectively, the earnings per share were 0.58 yuan and 0.45 yuan (diluted) respectively, and the net assets earning rate was 22% and 9% (diluted) respectively. In January 31st of.2007, the closing prices of the two stocks were 14.30 yuan and 10.75 yuan respectively, and the P / E ratios were 22 times and 24 times (diluted) respectively.

The P / E ratio is close, and no one can see who has more investment value.

However, the value of Yingkou port is obviously underestimated from the 5.5 times and 2.4 times the market rate respectively.

The market does not take into account that the use of operating assets in Yantian port is nearly saturated, and profits can not continue to rise rapidly. The net asset yield of Yingkou port before listing is not too low, but it is diluted after financing. If the management level of the company remains unchanged, the rate of return will rise as the capacity to raise capital investment increases year by year.

In fact, the net assets yield of Yingkou port has been increasing year by year since 2003.

As a result, Yantian Port net profit fell 8% in 2007, and Yingkou port net profit increased by 14% compared to the same period last year.

February 2007 ~2008 April, Yantian Port shares fell 22%, Yingkou port share price rose 19%.

Return on net assets

The key to investing in stocks is to increase the net profit of the company.

If a company does not grow, investing in stocks at a reasonable price will yield only a similar interest to the bank interest.

Investors must first seek high growth companies, while those with high growth must have a higher net asset yield.

If we do not consider refinancing, assuming that corporate profits are all used for reinvestment, and the rate of return on reinvestment is the same as that of the company's original net assets yield, the net asset yield of the company can be regarded as the net profit growth rate.

For example, a company's earnings per share are 1 yuan, net assets per share is 5 yuan, and net assets yield is 20%.

Assuming that the reinvestment of 1 yuan will generate a profit of 0.2 yuan, the net assets and earnings per share of the stock will grow to 6 yuan and 1.2 yuan respectively, and the return on net assets will still be 20%, with a growth rate of 20%.

If the net profit growth rate of a company is much higher than that of the net asset yield, there are generally 4 reasons. First, profits are generated through reinvestment after years of accumulation. On average, the annual net profit growth rate will not be very high.

The two is the improvement of the company's management capability or industry boom, which makes the company change from low yield to high return. However, after a certain level of return on assets, it is difficult to increase substantially.

The three is the sharp increase in other non recurring income, but this situation is not sustainable; four, refinancing has generated profits after investment, and this growth is also not regular.

Taking into account the 4 situations, investors should look at the net assets yield and net profit growth rate of stocks over the past 5 years, and roughly calculate the future growth rate of the company.

Profits grew steadily for more than 5 years.

Why should we look at the stable growth history of the company for more than 5 years?

Many listed companies are keen to whitewash the financial statements. Therefore, the one or two year profit growth can not explain the problem. There are quite a few companies with a good year, two years, and three years.

Some companies have increased profits for two or three years in a row and share prices have been sharply raised. Then, as share prices fell, profits began to dive.

Only those companies that have been operating steadily for more than 5 years and whose net profit has kept growing generally can be identified as growth firms in general.

reliability

The companies whose profits increase or decrease are not related to the ups and downs of the stock market are more reliable.

Especially in the long and low market, stock price has not been hyped up, and the net profit of the company still keeps steady growth.

The truthfulness of large company statements is generally higher than that of small companies.

After the annual annual report is issued, a handbook for collecting annual reports of listed companies can be bought on the market. Investors should keep references for permanent use.