Sri Lanka Equity Forum
Dear Reader,

Registration with the Sri Lanka Equity Forum would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
Sri Lanka Equity Forum

Discussion Forum for Stock Market Investors in Sri Lanka

සිංහල පරිවර්තනය
Submit Post
Submit Post
Market Place

Add an ad

View all ads

Latest topics

» Triple Top Reversal pattern
by Teller Today at 9:16 pm

» lOFC definitely will hit 6/-
by Winner123 Today at 7:45 pm

» Keep eye on Politics
by Yahapalanaya Today at 6:25 pm

» Bottom of market
by samaritan Today at 6:14 pm

» BFN - PRIVATE PLACEMENT ANNOUNCEMENT TO COME SOON
by mahasona2 Today at 1:00 pm

» LOFC - LDEV -EXPO ....BULL RUN TIME FOR COLLECTION ..
by mahasona2 Today at 12:54 pm

» Why AAIC Should trade above RS.50/-
by wisdom79 Today at 12:38 pm

» PAN ASIA POWER
by Nuwan Samarawickrama Today at 10:33 am

» Aluf will be better
by wisdom79 Today at 8:50 am

» Stop promoting garbage. Don’t get deceived.
by wisdom79 Today at 8:46 am

» RICH is not bad @ 9/-
by Teller Today at 3:18 am

» BFN බොරු සෙලින් දාලා කොහොම හරි 11 වගේ ගානට 500000 එකතු කරගන්න කියලා අර 14 ට ලක්ශයක් සෙලින් දැම්මේ මේ ටේලර් මහත්තයාම තමයි
by Teller Today at 3:16 am

» Be careful with HVA and LITE
by Teller Today at 3:11 am

» WATA future looks good
by Teller Yesterday at 10:00 pm

» If i am the EPF buyer,I will go for PLC
by Teller Yesterday at 9:59 pm

» LLUB Pattern reversed. Good buy @60, target +20%
by Teller Yesterday at 9:58 pm

» THE CURSE ON JKH
by Teller Yesterday at 9:04 am

» Why we should buy AEL.N0000…?
by Miss-Sangeetha Yesterday at 7:45 am

» The Curse Of AEL
by Yahapalanaya Tue Jun 18, 2019 11:06 pm

» Senthilverl Drives Sri Lanka Stock Market Turnover to hit Rs.2 billion
by Yahapalanaya Tue Jun 18, 2019 11:03 pm

» 8 Finance companaies to be closed very soon
by samaritan Tue Jun 18, 2019 8:52 pm

» Copreus (Pvt) Ltd - Need some Information
by Copreus Tue Jun 18, 2019 12:44 pm

» BALA can come down to 9/-
by Teller Tue Jun 18, 2019 12:27 am

» MARKET UP......BUT BFL....GRAN....TAFL......
by Trader321 Mon Jun 17, 2019 4:31 pm

» TAFL - GOLDEN EGG IN POULTRY SECTOR
by Trader321 Mon Jun 17, 2019 4:29 pm

» MGT.N0000 & TJL.N0000 keep eye.
by Trader321 Mon Jun 17, 2019 3:58 pm

» TAFL.N000 / GRAN.N0000
by Trader321 Mon Jun 17, 2019 3:57 pm

» Market will test 4700
by karuna2 Mon Jun 17, 2019 1:08 pm

» Loss-making stockbrokers may not last six months
by Miss-Sangeetha Mon Jun 17, 2019 12:51 pm

» Those who are having SUGA And HDEV (Hotel Developers)coming week you all can excpect Good News to come
by Capton KIng Cool Mon Jun 17, 2019 12:25 pm

» ECL wAS 2.8 Last week Today 4.7 .Whats Next? Acme?
by Capton KIng Cool Mon Jun 17, 2019 9:02 am

» IDL IDL IDL
by Teller Sat Jun 15, 2019 6:18 pm

» Look APLA its trending to 98LKR
by Teller Sat Jun 15, 2019 2:24 am

» SAMP Oversubscribed?
by Teller Sat Jun 15, 2019 2:13 am

» Apple Lost Sales in Europe to Chinese Firms Ahead of US Huawei Crackdown
by Teller Sat Jun 15, 2019 1:44 am

» Market is On The Rise.Market PER 8.5, EPF Has entered the market curently they are buying AEL (Access Enginering)There'r lot of counters. Rich,TkyoAsir,Amsl,Osea.CINV.EXPO,JINS and Tyre.good luck
by wisdom79 Fri Jun 14, 2019 7:55 pm

» NEXT RUN People's leasing and Finance WAIT AND WATCH ENJOY RIDE..
by ddrperera Thu Jun 13, 2019 9:25 pm

» EPF Investment in Unquated copmanies .Who is responsible Previous Centeral Bank Governer and Former Regime.
by Capton KIng Cool Thu Jun 13, 2019 9:05 am

» PDL (Property Development)
by Capton KIng Cool Thu Jun 13, 2019 8:51 am

» EAST Steady at 18
by Cricketman Thu Jun 13, 2019 5:28 am

» Guys what happen these days
by Yahapalanaya Thu Jun 13, 2019 2:29 am

» its right time to buy PHAR@700
by Teller Thu Jun 13, 2019 12:50 am

» Look PAP Amazing company
by Teller Thu Jun 13, 2019 12:46 am


You are not connected. Please login or register

Sri Lanka Equity Forum » Stock Market Talk » Acquiring Undervalued Stock for Your Portfolio by Buying on Bad News

Acquiring Undervalued Stock for Your Portfolio by Buying on Bad News

Go down  Message [Page 1 of 1]

lbnnirmal

lbnnirmal
Manager - Equity Analytics
Manager - Equity Analytics
Acquiring Undervalued Stock for Your Portfolio by Buying on Bad News Acquiring-undervalued-stock-59f80532d088c00010b13a0d

Even the best companies, industries, and sectors fall out of favor from time to time. A fully-informed investor, with a pocket full of cash and a firm understanding of the situation, can calmly stride into a turbulent market and acquire shares of these underdogs at a fraction of their intrinsic value. How do you know which companies are permanent losers and which are undervalued gems? Answering the following questions and tests of quality will help you determine if you should invest your money or keep it stashed in cash.


1. Is The Problem Temporary or Long-Term?

You must be careful not to simply invest in a company because everyone else is running from it; sometimes there is a reason to run! There are many companies that aren't worth buying at any price. Trash is trash, regardless of how much you pay for it.

In some cases, problems arise that are the result of one-time mistakes on the part of management. During the Savings and Loan crisis, for example, bank stocks were beaten down to almost comical levels. An investor who mentioned he was purchasing shares of these institutions was immediately scorned, mocked, and considered crazy by even close friends. At the same time, firmly entrenched companies such as Wells Fargo (which boasted a solid balance sheet, established reputation, top-notch management, and steady customer base), were hit just as hard as banks of lesser quality.

Years later, those that had exercised courage and relied on their analytical judgment by purchasing shares in such banks found their portfolios much fatter. Remember the words of a very wise man; "you are neither right nor wrong because the crowd agrees with you; you are right because your analysis says so."

2. Is the Business an Excellent Company with Suitable Market Capitalization?

As always, you should be interested in non-asset intensive businesses with high returns on equity, little or no debt, operating in non-commodity type industries without fixed cost structures. You should also attempt to look for undervaluation in larger companies rather than smaller ones. In the event of a retail recovery, for example, Wal-Mart is more likely to get back on its feet sooner than a small specialty retailer such as Tuesday Morning. The owner of smaller issues may find himself waiting considerably longer for his shares to realize their full value in the market.

3. Does Management Have an Excellent Track Record?

Great management tends to produce great results for everyone involved, including the shareholders, employees, directors, executives, and customers. If a company has encountered significant problems for consecutive years while the industry in which it operates prospers, it is likely that management has been unwisely retained. In such cases, you and your pocketbook would be better off ignoring the empty promises of executives who are only interested in keeping their jobs.

The quality of management question is perhaps one of the most important an investor must pose to him or herself. Coca-Cola is an excellent example of how good management can make a great company even better. A stellar performer for generations, it wasn't until Roberto Goizueta became CEO that the business became a truly global powerhouse, throwing off cash to its stockholders faster than they could gulp it down. Between 1984 and 1993, Coca-Cola acquired 570 million shares of its own stock through its stock repurchase program, reducing the shares outstanding from 3.174 billion to 2.604 billion.

This 21% reduction resulted in significantly higher earnings-per-share for each of the remaining shares of common stock, bolstering already mouth-watering operating results.

With that said, it is important to keep in mind that past results do not guarantee future performance.

4. Are You Financially Able to Wait Out the Storm?

After you've determined that the company's problem is temporary, management has an excellent track record, and the business possesses excellent economics, there is still one question remaining before you consider purchasing a seemingly undervalued stock. Are you financially able to wait out the company's troubles? What are the odds that you will be forced to sell your stock to meet another obligation?

If there is even the slightest chance of a forced sale due to a personal need for cash, don't even think about buying the stock. "But it's a wonderful investment opportunity!" you may protest. Yes, it may turn out to be one of the best investments of your life. However, if you do not have the luxury of waiting for the company's intrinsic value to be reflected in the share price, you are gambling. As investors, we know that a good company will eventually be recognized by the market; we don't know when.


The moment you fail to make that distinction, you become a speculator. In the short run, anything can happen. There is nothing to stop an undervalued stock from falling significantly further in price. You must have the time to wait for the inevitable result of wise investing, regardless of whether it takes a week, month, or several years. In the end, your sound analytical judgment and unshakable patience should be handsomely rewarded.

Source

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum