How to Calculate a Stock’s Intrinsic Value | Cameron May | 1-22-20 | All About Stocks


how might a stock investor determine
whether the price they’re about to pay is too high it’s just right or maybe
even a comparative value let’s explore it good evening welcome back everyone my
name is Cameron May it’s 6 o’clock Eastern Standard Time on a Wednesday
afternoon that means it’s time to get back into our ongoing series of
discussions called the all about stocks series and today I’ve decided we’re
gonna be talking about value investing specifically how might an investor
calculate a price to determine whether a stock is overpriced under priced how
much are they willing to pay I think that’s a big question a lot of us have
had so I’m looking forward to exploring that with you let me uh before we launch
into that let me say hello to you returning veterans thanks for joining me
week after week so oh there I already see Rakhi chiming in Susan J frost
gurgly that’s a new name but welcome to you if you happen to be here for the
very first time I want to welcome you as well and if you’re listening in on the
YouTube archive after the fact enjoy the show but be aware that you’re
invited to join us if you want to put it in your personal calendar 6 o’clock
Eastern Standard Time on Wednesday is when we kick it off every every week so
we’re gonna be talking about value s value investing in just a moment I do
have a few things that we have to discuss first so we’ll quickly review
some important information then I do see a question here and I do think I have a
good suggestion for you but let’s go straight to it all right then we’ll set
that agenda for the day quick reminder any investment decision
you make in your self-directed account is solely your responsibility intrinsic
value calculations and designations are for illustrative purposes only this
presentation should not be construed construed as a recommendation or
endorsement of any particular investment or investment strategy all investing
involves risks including risks have lost and for those of you who do options
trading it’s not going to be the topic for today but there’s an overview of
your options Greeks hey there’s seat DB hello there good to
have you back alright now here’s the agenda for the day and then I’ll address
that question agenda pretty simple we’re going to talk about what is a potential
process for determining what’s called the intrinsic value of a stock that is
how much is it I don’t know how much is the stock worth investing in it’s 50 if
a stock is priced at $50 is that a good price or could it be even more
maybe we should be paying less we’ll see then we’re gonna use the website TD
Ameritrade dot-com to screen for examples of value stock stocks that
might be under priced according to some sample characteristics that I’ll be
outlining for you today and then we’re going to review some in current example
trades and we’re gonna run those trades through the intrinsic value calculator
available on the site so by the end of today’s discussion what I want you to
walk away with is a full recognition of the tools that you have available at
your disposal when that question arises is my stock over priced under priced how
do we how might we address that all right so I did see a question here in
rocky to ask the question hey what’s the best so this is it might seem a little
bit off topic that’s okay Rocky says what’s the best way to find stocks
suitable for collars or strangles those are option strategies here what I would
suggest for you there rocky you can check out a webcast it’s done live every
Wednesday so it’s a little bit late today but we have it what’s called the
trader Q&A you just pop in to that it’s Wednesdays at 5 o’clock Eastern so just
wrapped up but it is an open forum but just to ask questions about trading so
there you go so even though yeah you said maybe this is the wrong class for
that question I don’t consider the wrong class if I
can at least point you in the right direction right alright so let’s go to
I’m gonna go straight to the website alright and I’m gonna pop up here let’s
start right from the home page so I’m gonna click on the TD Ameritrade logo in
the upper left that takes us to our home screen will be a my account overview
page I want to make sure that everybody can follow right along step-by-step but
what we’re addressing here is theoretically that question is this
stock that I’m about to invest in currently priced fairly is it over
priced or is under priced so we’re talking about looking for stocks and
this is a fairly common pursuit by some investors how do I find stocks that are
quote unquote undervalued or under priced and we’re going to be using a
value of valuation calculator but the first thing that we’re going to do is
try to narrow down the huge field of potential
value candidates there are about 12,000 stocks that trade on the major US
exchanges and on the over the counters and things like that so how do we find
what what do value investors look for well that kind of starts with a question
what is value well o CTB says will this be good for small and mid-cap stocks too
and or swing trading it could be CTB I can’t you know obviously can’t ever
guarantee it’s going to be directly applicable for anybody’s portfolio but
theoretically this could be applied even for shorter term periods it could be
applied for smaller capitalization mid capitalization stocks as a matter of
fact that’s going to enter into our equation a little bit but what is value
I want to do I want you to think about some this in terms that it might be a
relatable value just means someone thinks that they’re paying a good price
or whatever it is they’re buying so for example maybe we’re out there shopping
for a television set and we’re comparing to let’s say each priced at $500 and
we’re to trying to determine which is the greater value well it’s pretty
straightforward with something with a commodity like that right we might be
able to look at shared characteristics between thus the two candidates sets
let’s say we have set number one it’s a 65-inch TV set number two it’s a 55 inch
TV well if value for for the consumer is defined as being bigger is better then
maybe number one is better than number two and as we explore more deeply we
might look at screen resolution we might look at embedded apps or applications
they’re built into the into this system may be the maker may be warranties
situation all kinds of things that may determine which one is the better value
for a stock investor they may be looking at similar things where we’re trying to
come up with broadly applicable characteristics where two candidates
securities can be weighed one against the other when we’re looking at price
the difficulty here is the price is very rarely standardized so sometimes we need
to do whatever the price is compare that price to some other
you know if you have a $50 stock and then you have $100 stock now it it might
appear to be we’re comparing apples and oranges well maybe not so what are some
of those some of the things you value investors out there you know what I’m
talking about what are some of these characteristics
that a value investor might use is they’re trying to filter down through
thousands of potential stock candidates well they might start with price and
compare it as a ratio not an absolute but as a ratio to performance metrics
like sales like earnings like Book value okay so if we have a ten dollar stock
for example stocks priced at ten dollars but it only made who knows a dollar
valent that’s even let’s exaggerate a little bit more let’s say it’s a hundred
dollar stock and it only made $1.00 in profits last year
well now we’re playing a we’re paying a ratio of price to profits of one hundred
to one we would call that the p/e ratio price to earnings right now we we could
compare that to another stock where the numbers aren’t even the same maybe it’s
a $50 stock and it has let’s say earnings of $2 well that has a ratio of
25 to 1 you can see how that’s starting to standardize things even when things
are non-standard yeah laxmi know exactly where we’re headed right p/e ratio
earnings Book value those kinds of things those aren’t the only ways that a
value investor might begin to identify value but there’s some of the ways that
we might look so what I’ve done in another webcast that I did a couple of
weeks ago I talked about value stocks and I created a screen just an example
screen for sample value stocks so I’ll I’m going to quickly take you there I’m
gonna go to the research and ideas tab I’m gonna go to screeners and since
we’re looking for stocks we’re gonna use the stock screeners and you can see that
I have a screen that I’ve titled value now if you want to see that webcast I
think what I could do we’re only nine minutes in I’ll just link it in the
upper right hand corner on the archive for this session so you can go go to
that archive and it’ll link your right to the class where I discussed that or
if you’re watching on the YouTube archive after the fact right now you
already see it okay but I’m gonna go run that screen I’m gonna click on the word
value and let’s just look at how this was built I’m gonna come right up to the
top of this screen I’m gonna click on modify screen what that does is it
essentially reveals the guts of the screen it reveals how this was
originally built and it’s interesting that the question came in who was it
that asked this CTB says will this be good for small and mid-cap stocks too
interestingly what were what was the very first requirement of this screen
smaller mid-cap stocks because we’re might value be found is it is it
conceptually more likely to be found among the great big companies that have
maybe theoretically they’re approaching maturation obviously even a very very
large company can grow larger but if we have a small company it may have greater
at least apparent surface capacity for expansion right so market capitalization
was the first requirement that we’ve added here if you know and if you don’t
know how to add these things if you haven’t ever you built a screener before
you can just click on create a screen and you can start checking boxes for
what’s important for you market capitalization and then put in specific
criteria here so we’ve started with small to medium capitalization companies
then beta came into play and what we’ve done is set the beta right around
average beta is just a measure of how volatile stock is if a stock has a beta
around 1 that means that as the S&P goes up and down it typically goes up and
down at about a 1 to 1 relationship with that a more volatile stock would have a
higher beta less volatile stock would have a lower beta a value investor might
be might not be looking for extremes in either direction so we set that beta
right there in the middle range next up the p/e ratio comparing price to
earnings well the average p/e ratio is twenty three point eight five and for a
value investor do they want higher price compared to earnings
or a lower price compared to earnings theoretically out lower so what we’ve
done here is we selected less than average now average has floated a little
bit so so with average around twenty three point eight five maybe the
investor sets their minimum or pardon me they’re at maximum at twenty three point
who knows if we’re splitting cares 23.84 but I’m not gonna be changing these I’ll
just let I’ll just leave it I believe that was at twenty three point six eight
that’s okay at least you get the idea now what about price to other metrics do
we want price to be lower or higher when compared to sales probably lower so
we’re going with here’s average and we’re going just a little bit less than
average lower price compared to sales price to book some people might not be
familiar what price to book means sometimes expressed as price to book
value no book value is essentially I will sometimes describe it as like the
fire sale value of a company that is let’s suppose that you were a
shareholder in a publicly traded company and it and it was decided that the
company was going to be entirely liquidated all their assets liquidated
they pay off all their liabilities and whatever is left over is gonna be made
into a big pile of cash and they’re gonna chop up that cash and distribute
it among their shareholders so everybody gets a little piece of that pile well
what would that pile look like that’s what we call the the book value per
share so priced a book do we want to be paying up a high price per share
compared to the book value of the company or a lower price per share or a
lower price average recently was 2.18 when I set up this screen it was
actually 2.16 so we went just below that now what about absolute price per share
is a value investor conceptually looking for high priced securities or lower
priced securities well we went for the lower end of the range right now ten to
fifty dollars and that completed our screen so we’re looking for stocks that
are priced low compared – performance metrics stocks their price
low in absolute terms but also stocks they’re in that small to mid cap range
with sort of average levels of volatility that’s what we were looking
for so I’m gonna run this search but I want to add one other thing here that’s
going to play a role in our in our calculations in a minute I’m going to
come right back here toward the top and I’m going to click on fundamentals and
we’re gonna add EPS growth rates all right now you’ll understand why I did
this in just a moment but let me just explore this conceptually if a stock if
the price has been recently depressed for whatever reason is it possible that
it that that that was a good reason that the stock was depressed maybe the reason
the stock has come down in price compared to historical earnings compared
to historical sales and so on is because maybe investors are not really looking
to see growth in earnings in the future so that could be one reason what we’re
gonna try to do is head that off right now so we’re gonna add an additional
requirement to this established this search that I built before and we’re
gonna put in earnings per share growth and let’s just make sure that they’re
projecting earnings that are at least positive all right I’m gonna put in a
specific value that we’re at least greater than or equal to and it could be
zero could be one we’re just basically saying some projected growth to earnings
into the foreseeable future okay well actually is asking a good question why
do I need to do all this well one thing is I can say you don’t have to do all
this this is not a sales pitch for a process it’s just exploring how a
process might be accomplished right lashley goes on to say I think the
market has many little intellectuals they will price the stock price so I
just compare price growth for ten years and that’s possible right could it be
that the markets at all times are fairly priced for all things possible yep
could it also be though that sometimes and I think this is what value investors
are sort of looking for that a stock gets sold off to extremes are there
times when you have you ever looked at a socket you thought you know what it just
intuitively makes sense to me this stock is too low and I wish there was some way
to put some harder numbers into that that’s what I’m attempting to do today
however some investors don’t pursue this and it’s not my purpose to try to
convince you otherwise so legitimate laxmi okay very good all right but I’m
gonna view the 11 stocks here without we started with over 12,000 there are only
11 that meet all these criteria so I’m gonna click view 11 matches and I’m
gonna look now I think what we’ll do let’s just use Foot Locker here as our
example moving forward now I’m gonna also zoom back a little bit because down
below these are the specific metrics for each one of these companies so this
information right here is for Stanley Electric the second line is for Foot
Locker what I’m going to do is align those up to the right here
the reason why they’re not aligned right right now they’re stacked I want them to
look more like this the reason you’re not doing that right
now is because I jumped in so close that that the screen had to adjust itself to
fit all the information on the screen so I’m just gonna back this off take it
down to about a 110 zoom and now you can see I can see here’s Foot Locker for
example I can see that it is a 4.2 billion dollar company it currently has
a p/e ratio of 8.6 it has priced a sales of 0.5 1 and as I scroll over I can see
that it has a an earnings per share projection of about 7.4 percent per year
so this is a company where the stock price may be depressed but there’s still
some projected growth in earnings for the foreseeable future
so now we’re going to move on to another step and as we do this what I would like
you to do if you if you could just make a note to do me a
favor if you can see in your chats right now there’s a link to a survey we
definitely appreciate your feedback whatever you think of this webcast we’d
like to get your feedback on the webcast if you’ve never filled out one of our
surveys before you click that link and it takes you to five multiple-choice
questions they’re super quick it’s all on one page
click click click click and you’re done all right so thank you for that feedback
just helps us to improve our webcasts so now we’re going to take this as I
mentioned another step these these metrics that we have entered into the
system may may provide some essentially a hint of value for some investors they
that means that may be enough enough information but for others they’ll like
they’ll get a little bit more granular what they’re trying to do is ultimately
determine is the price per share right now fair for me that’s what that’s the
question are trying to answer and we’re going to see if we can address that in
some way ok and we’re going to be using an intrinsic value calculator what does
intrinsic value mean well that means that is that question how much is this
stock worth right now what is its intrinsic value so I’m gonna go to the
recent apartment to the education tab and I’m gonna go to the stocks course
now how many of you we have 27 people watching right now how many of you have
used the intrinsic value calculator before let me go to the stocks
fundamental analysis course while you answer that question as I click on
continue here it just launches the course and up in the upper right of the
course here’s that calculator that we’re going
to be using the intrinsic value calculator and what it’s going to be
doing we’re going to put it and be putting in some specifics about current
market conditions and the current conditions of a specific stock and
that’s going to generate for us a specific price for that stock but before
we use it and I’ll bring it up on your screen so you can see what this looks
like there’s our determining intrinsic value
calculator all right but how my let’s talk about
how an investor might determine a price to pay for a stock ok CTB says it’s
confusing Susan you haven’t used this before okay well how do you how do you
value a stock when you value a television you might just add up all of
the variables right well it’s a 65-inch TV you know it has a number of good apps
built into it it has you know it’s 4k it’s made by a good manufacturer has a
nifty remote and you start to tally those up and you’re thinking alright so
in my estimation this is a $500 TV and so then you can look at it say well wait
a second this crazy retailer is asking a thousand bucks for this 500 all our TV I
know I can get a better deal somewhere else and so that consumer might walk
away from that deal well what how does a stock investor determine something
similar we’ve already discussed general characteristics now what we have to do
is start adding those characteristics together for a stock investor what are
they trying to get out of the deal television buyer wants to go home and
watch TV on a big screen with in high definition a stock investor most likely
very likely wants their investment to grow in value okay well what causes an
investment to grow in value okay Oh someone just asked this question lol
Mukesh Mukesh says what about debt to equity is that another potential value
metric it could be now there are some others that we could have layered in
here so yeah thanks for asking that question you could build that into your
set of filters yeah but to my question now what drive stock price well if you
have two stocks one of them fails to generate a profit consistently year
after year after year they never generate a profit what’s probably gonna
happen with the stock value over time probably gonna go down can’t ever
guarantee it there are historical examples of companies defying that trend
but that’s a likely outcome on the other
hand if you have a stock regardless or irregardless of whatever its current
price is if that stock starts to generate increasingly large profits what
typically happens with the price typically price rises right so an
investor in in attempting to assess whether a stock is at a fair value or
not one thing they might look for is what’s the current price and what are
the projections for growth in earnings now if we can determine those
projections we might be able to start to determine well if we’re getting a little
bit of growth maybe that’ll lead to a little bit of growth in price if we’re
getting a lot of growth in earnings maybe we get a lot of growth in price
now then an investor might use that
information if earnings are projected to grow maybe we can calculate a an
expected future value of the stock whatever that may be that’s what this
calculator is going to attempt to help us to do but even if we know an
estimated future value let me use some exaggerated examples here to drive home
a point again okay so let’s say we’ve calculated a future value and we say
it’s a $50 stock right now and let’s say we’re projecting five years from now it
might be a $51 stock well that’s growth but the question is
is it enough growth well what if this is historically been like an extremely
volatile stock is it gonna be worth sitting around for five years maybe
through some significant ups and downs to get that $1 in growth doesn’t that
need to be built into the equation yes and it is well what if the stock itself
isn’t necessarily inherently volatile but the markets are going crazy right
now might we need to add a premium to how much potential growth we’re seeing
in order to determine whether we’re overpaying or underpaying all of these
variables need to be built into an equation and and they are here all right
so can this get complicated CTB it can be yeah now
if you want to strip away that complication what you might want to do
is read through our stocks fundamental analysis course which takes you through
this process step by step but basically what we’re what we’re attempting to do
today with this calculator is compare today’s current price to a projected
future price and see if there’s enough growth that’s anticipated to compensate
us for how much volatility we might have to sit through and that’s gonna change
from one stock to the next and from one market condition to the next so let’s
start plugging in some numbers here now one thing that’s really nice about this
CTB and others when if you’ve never used this calculator before you can’t get
lost because there are step-by-step instructions over here so step one we’re
going to be looking for the earnings per share growth rate and one of the things
that it reminds us that we can do it says you can find the projected earnings
per share growth rate using the TD Ameritrade stock screener we just did
that so all I need to do is go back to the screen results page look at that I
left it that was a mistake on my part it’s okay it’s easily redone let’s go
back to our stock screen and let’s run that value search and I’m just going to
slap on that growth projection requirement again right down here under
fundamentals earnings per share growth let’s look at that for five years and
let’s make that at least 1% per year and there are our 11 matches so there’s Foot
Locker and I can come over here to footlocker’s criteria and I can see that
it was expected to grow at a 7.3 9% clip so we can take that information back
here and we have filled in step one seven point three nine now there’s
another number that we might have used and that is instead of looking at
five-year projected growth we could actually look at just historical
earnings growth and just use that and this this step one description will tell
us where to go find that but let’s move on to step two and this is saying
now you need to know your stocks industry p/e ratio why the heck do we
care about the stocks industry p/e ratio what we’re trying to do is anticipate
what how is the stock price likely to react to growth in earnings if we get
that growth projection what might that mean for the stock what might that mean
for the price well what if there’s been what if there’s a normal relationship
between price and earnings well for a stock we might look at it at the p/e
ratio for its entire industry and that might be used as quote-unquote normal so
if let’s say if an average stock in that industry has a price that’s let’s say 20
times its earnings and we can take this company’s earnings and just extrapolate
it out five years I don’t have to do that because the calculator does that
for me then we can just multiply it by the p/e
ratio for the industry and they’ll tell us a future expected stock price I know
that’s a mouth that’s a mouthful it’s easier to follow when you’re reading
through the course sometimes I don’t express it very clearly but that’s what
we’re doing here so let’s go to the website I’m just gonna click on Foot
Locker here as our example and I’m going to go to the know the valuation tab I
got fundamentals on the mind I meant to go over here to valuation but there’s
the p/e ratio for the industry what’s our industry p/e ratio 25 point one one
if you don’t know how I got here all you have to do is take your stock
symbol type it in and go to valuation that’s it
there it is 25 point 1 1 okay and see what that’s doing here
that’s starting to that’s starting to project for us it’s starting to
calculate well if earnings are growing at a certain clip and there’s a sort of
a normal relationship between price and earnings well if we calculate what
earnings are five years from now that might calculate for us what an expected
stock price might be next up we have to compare current price to that future
expected stock price or calculated stock price and determine is the difference
between those two enough for today’s price to be a good value and as I kind
of hinted well if we’re dealing with kind of a crazier stock we might need to
see larger growth potentials to compensate for that so how do we measure
where their stock is crazy or not well we look at the stock’s beta that’s a
measure of its volatility where do we find beta well right over here it tells
us locate and enter the stocks beta it’s found on the summary tab of the stocks
profile page what does that mean go to the website you type in your symbol and
by default you’ll land on the summary page you don’t even have to do anything
else type in the symbol and you’re there and
you find the beta of 0.9 so let’s put that in our calculator there we go
next up we’re looking for the VIX that’s a volatility of how volatile the stock
market is being right now so if we’re out looking for vault if we’re out
looking for value stocks and we’re doing that at a time when the markets are
being comparatively calm what might that do for the amount of growth projection
that we might require well if the markets are calm
if conceptually risk is lower maybe they don’t need as much reward potential
that’s built into the equation but we need to know how volatile the markets
are being and we’re going to use VIX as our gauge of volatility so here I’m
going to go to a chart of the volatility index let’s bring up our charts on
thinkorswim and I’m just gonna type in VIX and right
here we can see our volatility right now it’s at twelve point nine one and again
this will tell you you can get that on the website you could type that isn’t in
as dollar sign vixx that is written type it right in on TD Ameritrade com
or you can type it in on thinkorswim as vixx but what was it twelve point nine
one is that right yep so let’s plug that in next up it’s asking for the current
tix value tyx why is that well actually just ask the question do I need to go
through all this couldn’t I do something else actually yes there we could
certainly do something else with our money the calculator also builds in an
assumption of what we call opportunity cost after going through all of this
trouble what if we came up with a calculation that let’s say that we’re
projecting a growth per year if things go well that we could make 2.2 percent
return per year well you might think well G’s 2.2 percent doesn’t sound like
very much as a matter of fact I could probably just give my money to the US
government in the long term and get that much without having to deal with all the
volatility of stock ownership right so this looks at a comparison of where else
money might have been spent and so we look for what’s called a risk free rate
of return now is anything truly really risk free probably not but the very
lowest risk might be with investing with the US government at least conceptually Ricardo there is yeah tomorrow morning
selecting us a option strategy they might not have put it on a calendar yet
it’ll be there I’m planning to be there yep all right so I’m gonna come to the
website again or go to you sink or swim and just type in tyx we could type in
dollar sign T Y X dot X on the website but we can see that our tix value is 22
point 1:8 what does that mean well that means
on a 30-year Treasury the current yield is 2.2 1/8 just moving the decimal one
to the left and we might have just skipped this whole process and just
invested in Treasuries and gotten that so I’m going to type in twenty-two point
one eight and the system automatically that the calculator automatically
adjusts that downward all right now finally some easy stuff stock price
stock earnings per share what’s the current price per share it’s thirty nine
ninety seven let’s plug that in and stock earnings per share where do we
find that right over here it says both of these are found on the summary tab of
the stocks profile page and again all of this is found just by typing in the
symbol it seems like we’re going a lot of places we’re really not this summary
tab has the price per share and oh it looks like I was looking at a post
market trade let’s put in let’s put in a closing price of 30 I’m going to adjust
that just a little bit’s not gonna make a huge difference but 30 978 we’ll
adjust that and I might as well show this one more time to get the the
earnings per share it’s found right here EPS trailing 12 months for 61 all right now finally all we need to do
is type in the years of projected growth growth
some models will go for five years some ago for ten years I’ll just use five for
our example today so what have we accomplished here well what the system
is doing is it’s taking the current earnings per share the earnings per
share over the last twelve months and it’s looking at well how fast are those
projected to grow and then it can calculate out what the earnings per
share should be five years from now assuming we get that growth then if
earnings have gone up a certain percentage and we look at what the
industry p/e ratio typically is that might allow us to calculate an expected
future price of the stock and then once again we can calculate well if we have
that expected future price and we know the current price of the stock
absolutely is there enough room for growth there to compensate us for the
stocks volatility for the market volatility and for the fact that we
could have just invested our money somewhere else that was much
quote-unquote safer like going into a 30-year Treasury all of that is built in
here CTB that’s a bit of a that’s a bit of a mouthful but the bottom line here
is we generate what’s called the intrinsic value of the stock let me let
me bring this down just a little bit I want to make sure that I’m not running
into anything on our side screen and I’m and we’re not there we go so the
intrinsic oh and I did say I was going to change the stock price right there it
was thirty nine ninety seven after aftermarket hours let’s change that
change that to thirty nine seventy eight there we go alright but what this has done is this
is it has protected for us this intrinsic value number what is this well
this is the maximum that we could pay right now and still get quote unquote a
large enough return to compensate us for the volatility of stock and for the
volatility market that we’re getting into and get a compensation above what
we could earn just elsewhere in what we call a risk-free rate so that would
project what we could pay as much as ninety nine eighty and still if prices
if price winds up where we expect it to go get about a six point seven two
percent return well the stock isn’t priced at ninety nine eighty as a matter
of fact right now it’s at thirty nine seventy eight so we would say the stock
is under priced and it’s under price to the tune of about sixty percent so even
if all of our projections were off we could be off by as much as sixty percent
and still get a quote-unquote adequate return that’s what’s going on with this
tool now anytime I launch into the effort to teach this concept in less
than forty minutes I realize that I have I have a bit of an uphill battle I know
that for some of you this is going to be the very first time that you’ve seen
this before so I’m gonna emphasize again you may
want to check out our education that’s written where you can read through this
process read through the logic of the process and it’s in our stocks
fundamental analysis course and specifically in the lesson titled
determining and intrinsic value all right do you want it you might want to
check that out but let’s go place a trade here we have footlocker appears to
be undervalued again to the tune of about sixty percent for some investors
they might say you know what if it’s more than 25 percent that might be
enough we’re gonna go place that trade let’s go to our trade tab type in footlocker this is a $250,000
account inside a $500,000 portfolio but how about we go ahead let’s do let’s
just put a few percent into this how about four percent so I’m gonna click on
the ask price so 100 shares would be about four thousand dollars four percent
is about ten thousand dollars so let’s dial this up to about two hundred and
fifty shares there we go and I’m gonna submit this as a market order obviously
anytime you put in a market order particularly when the markets are closed
we don’t know exactly the price that we’re going to be paying now according
to the calculation we just ran even if the price went up a bit is that going to
be too much if our stock is priced around $40 and we were just calculated
we can pay around $100 and still have an adequate projected growth rate Guillermo
says could there could we do this with less than five years projected growth
what could gear mow we have a the tool to has that built into it or you can go
for shorter projection periods I will say that by most traditional models at
least the ones that I’ve studied that that might be coloring a little bit
outside the lines okay but I’m gonna click confirm and send about and I yeah
I calculated we’re going for about a ten thousand dollar investment here that’s
250 shares at about forty bucks a share transaction fees may play a role in some
cases so we still want to bear those in mind but I’m gonna send that order off
all right so that I can’t say in a nutshell necessarily but in 40 minutes
that is one approach one potential approach to value investing so this is
something that takes some repetition I think you see that this is a webcast
that might bear to go back and watch once or twice but I would suggest go to
your own paper money account see if you can identify a stock that you believe to
be undervalued run it through the intrinsic value calculator go through
those to use the steps on the calculator that
guide you through the process and I think you’ll discover pretty quickly
it’s not nearly as much homework as you might feel like it is especially once
you’ve done it for one stock there are several variables within that
calculator you don’t even need to change for the next stock the volatility index
and t YX not going to change from one stock to the next unless the markets are
open unless those values change a little bit hey Guillermo my pleasure thank you
and everybody thanks for being here time for me to set you loose it’s the evening
we vent we’ve reached the end of our webcast day so everybody go have a great
evening get some practice with this up next as Ricardo points out tomorrow
morning I kick things off with the selecting an option strategy webcast I’d
love to have you there even if you’re not seeing it in your
calendar yet it’ll certainly be there by tomorrow morning Andrew
very good all right hey if you say that’s clear that’s good because it’s it
is a process alright quick reminder of the risks associated with investing
risks are real intrinsic value calculations and designations for
illustrative purposes only obviously when I’m not this on a sales page for a
specific process or for a sniffing a specific security I will look for you
next week for another discussion of another stocks investing related concept
in our all about stocks series Guillermo very good you’re welcome but you’re
invited to join me my other regularly scheduled sessions between now and then
but whenever I see you again until that moment arrives I want to wish you the
very best of luck happy investing bye bye

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