Value stocks are stocks that appear to be undervalued or simply may be trading at a discount to their real worth or intrinsic value. They are not cheap stocks! They just tend to trade at a low price relative to their fundamentals. Therefore stocks that have a relatively high dividend yield; low price to sales ratio; or low price to earnings ratio may fall into this category.
You see, most investors and analysts like to think of value stocks as bargains. It is believed that, the market has undervalued the stock for a variety of reasons and the investor hopes to get in before the market corrects the price. The low valuations that value stocks enjoy are often as a result of some type of bad news. For example poor earnings results, bad press reports, legal issues, etc.
The most important thing to know about a value stock is that they are for some reason, trading under what their true value or potential really is. If you are an investor, and are considering this type of stock at this moment, my advice to you is that, you must have a longer time horizon, because if that stock has been undervalued or ignored for a while, it may take a bit of time before that stock gets noticed and makes a move.
These are the beauties of the stock world. They’re exciting, have good stories and can help create a lot of wealth. A stock is referred to as a growth stock, when it has the ability to give its holders a higher return than other stocks with similar characteristics. The stocks are usually able to achieve this superior return because; at some point, they were wrongly valued by investors.
It is important to understand that, growth stocks might not necessarily be stocks in a growth company. It will surprise you to know that, they are normally seen in neglected stocks. My advice to you is that; don’t stick your neck into growth investing without exercising some caution or better seeking advice from the experts.
You could borrow from a bank or other entities. Hey, but pause and think about this, first of all, no one will lend you money without a guarantee that he or she will get it back. Bank loans are associated with high interest that may eventually erode your profits, leaving you with less or no money to run your business. Another option is to attract people who are willing and able to invest money in your business. What will they get? You will award their trust in the viability of your business by a piece of the company.
They will become owners of it. As a result this will give them voice on the company's issues. A term to describe this is Private Placement.A third option is to look for firms and individuals that are specialized in investing in other businesses, which is commonly referred to as venture capital.
To be a successful investor you need two main things - the knowledge and the right trading platform. It is very important as an investor or a shareholder to monitor your investments. Don’t just buy shares in a company and go to sleep. If you do, then before you know it, all your investment will have gone down the drain.
First of all, it is necessary to follow the movements of the price of the share you have bought or better, follow the performance of the company whose shares you own. Secondly, it is important to identify which type of investor you are and your reason for investing in stocks. For instance, are you looking for fast money by getting in and getting out quickly? Or are you looking to find long-term core holdings? Is it for your retirement? Your child’s education, an income supplement? Etc.
Then, you will be able to tell which category of stock to go in for. You see, there are about four categories of stocks in which one could invest in. These are; growth stocks, income stocks, value stocks and momentum stocks.
These are stocks which move in relation to the market; however, when the overall market is falling, they fall faster and when the market is rising, they have the tendency to rise faster than all the other stocks of similar characteristics.
Many analysts and traders who invest in these stocks, hope to take advantage of the upward or downward trend in the stock’s prices or the company’s earnings. They believe that, these stocks will continue to head in the same direction because of the momentum that is already behind them.
Liken this to the horse, it is easy to ride it in the direction it’s already headed isn’t it? So is this category of stock!
If you are interested in getting this type of stock, it is important to target companies with rapidly growing earnings, a history of positive earnings surprises and stock prices that have a strong upward price trend. You’ll see that companies with this type of stock lead virtually all other companies in terms of sales growth and operating margins.
First of all, not all stocks have them. The payment of dividends is a discretionary decision made by each company’s management and the Board of Directors. For these companies who pay dividends, there usually exists a policy that is followed. A company with a history of paying dividends will rarely abandon that policy. Many companies have been paying and raising dividends for so long and there is rarely a sign that they will stop.
Dividend paying companies tend to be larger and older companies, with well-established cash flows that fund the dividend each year. Thus, they tend to be companies that are more stable, safer and less volatile. Many of them are quite simply, reliable cash-generating machines. They share some of that cash with you in the form of dividends.
It’s great to have you again lovely investors, I hope you have been following our discussions and have learnt something about growth stocks and value stocks. Tonight, we will be talking about income stocks. Income stocks are stocks that pay regular, often steadily increasing dividends, and offer a high yield that may generate the majority of overall returns. They are usually sought by conservative investors who still want some exposure to corporate profit growth. Conservative investors buy income stocks because they can make money from it in two different ways. These are, through the receipt of dividends and simply through the appreciation of the stock price.
The ideal income stock has lower levels of volatility than the overall stock market, and offer higher-than-market dividend yields. The stock’s issuer is typically a firm having stable earnings and dividends and operating in a mature industry. These mature industries may include real estate, energy sectors, utilities, natural resources and financial institutions.
Companies whose shares fall into this category may have limited future growth options, thereby requiring a lower level of ongoing capital investment. This enables the excess cash flow from profits to be directed back toward investors on a regular basis in the form of dividends.
One may ask why is it necessary to invest in stocks that pay regular dividend. Well, here is the answer; dividend stocks will help you accumulate far more money than any other stock investment. You see, you can always reinvest the dividends you receive! If this is managed effectively, then before you know it, you will be living a comfortable life!
Studies show that dividends account for up to half the total return of the stock market over the long term. The truth is that, to measure your total return on an investment in a stock for a period, you need to add your capital appreciation to your dividend received!
Well going public simply means listing on the stock market and offering your stocks (which signifies part ownership of your company) to the public. Most businesses go public when they want to obtain some additional capital to finance their activities and projects. An example is UTFS which went public last year to raise money for expansion.
Another reason will be to improve upon their corporate image which enhances their relationship with other stakeholders. So you see, if you have an innovative idea for your business but lack the necessary capital to execute it, going public should be one of the options, you should be looking at. In this way you will gain money to acquire the necessary equipment and other factors you need for the execution of your business.
There are two main types of shares; namely the common or ordinary share and preference shares. One may ask what the difference between these two is. Well, get this clear, holders of any of these shares still own a proportion of the company whose shares they have bought. However, a preference share entitles its holder to a fixed rate of dividend which is paid before any dividends are paid to common shareholders. In addition, in the event of bankruptcy or liquidation, if you are a preference shareholder, then you will be paid off before anything goes to common shareholders.
This is also known as a stock and it signifies a unit of ownership of interest in the company. An owner of a share or stock is referred to as a Shareholder or Stockholder. So simply put, a shareholder is one who owns a stake or a share in a company. In the past, shareholders received a share certificate that indicated that they owned “x” number of shares in a company. Today, thanks to the automated trading system, brokerage houses have electronic records that show ownership details of shareholders. Owning a “paperless” share makes conducting trades a simpler and more streamlined process.
It is important to note that, while owning a share in a company does not necessarily mean that the one has direct control over the businesses’ day to day operations, being a shareholder does entitle the possessor to rights. These rights include; the right to an equal distribution in any profits, if any is declared in the form of dividends. The right to vote on matters such as election of board of directors. The right to propose shareholder resolutions. The right to purchase new shares issued by the company and the right to a company’s assets during liquidation.
The term used to describe the first offer of sale of shares to the public is called the Initial Public Offering or the IPO. Usually, the services of an underwriting firm or an investment banker is employed, to best determine what type of security to issue, whether a common or preferred stock, the best offering price and the time to bring it to the market.
As an individual investor, investment in an IPO can be risky. This is so because it is difficult to predict how the stock will fare on its first day of trading and in the near future. Secondly, most IPOs are of companies going through a transitory growth period which adds to the uncertainty regarding their future values. On the other hand, if the stock does well, an investment in IPO could be one of the best decisions you would have taken all your life.
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