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

Latest topics

» EAST INTERESTING DAYS AHEAD 25+
by glad Yesterday at 10:40 am

» Weekly Stock Market Roundup
by Insights Equity Yesterday at 8:35 am

» What is going on with TFC.N0000
by Gihan04 Yesterday at 12:42 am

» Would CIC make an upward move in the coming weeks?
by hammurabi Yesterday at 12:39 am

» Why AAIC Should trade above RS.50/-
by wisdom79 Thu Apr 18, 2019 8:08 pm

» Daily Stock Market Update
by Insights Equity Thu Apr 18, 2019 6:17 pm

» SME M&A opportunity
by raheem72@gmail.com Thu Apr 18, 2019 1:21 pm

» Sri Lanka Hilton Hotels Must Investigate or Oust Unfit and Improper - Kashmi App Bankrupted Sanjiv Alles who hides about his Career in Kashmi for Colombo Hilton Hotel Director Profile
by AmalHoole Thu Apr 18, 2019 12:47 pm

» Why ALHP is having a huge demand despite consecutive losses?
by wisdom79 Thu Apr 18, 2019 11:03 am

» TIME TO LOOK AEL
by sanjulanka Wed Apr 17, 2019 6:42 pm

» HEXP next run up to 120-130
by nishjaya Wed Apr 17, 2019 12:21 pm

» Cabinet nod for Colombo Stock Exchange to be converted to a company limited by shares
by glad Wed Apr 17, 2019 9:30 am

» Lanka Bell to be acquired by Mobitel - Sources
by soileconomy Wed Apr 17, 2019 7:07 am

» Sri Lanka Watapota (WAPO) Guardian Capital lose Rs. 10 Mn of Funds because of Kashmi App Closed down, Kashmi Co-Founder Bankrupt Sanjiv Alles now landed on Hilton Colombo Director Board owned by Yahapalana Government
by AmalHoole Tue Apr 16, 2019 3:17 pm

» Sri Lanka Kattadiyalage Wegapitiya tries to manipulate Household Gas prices in Gas market, Wegapitiya lead LAUGFS Gas in a secret Deal to Bankrupt Government's Litro Gas by affecting 1.3 Million Households and 5 million people in the country
by AmalHoole Tue Apr 16, 2019 3:09 pm

» සුභ අලුත් අවුරුද්දක් වේවා.
by sanjulanka Mon Apr 15, 2019 12:38 pm

» I bought PCHH.N and SING.N sometimes back?
by hammurabi Mon Apr 15, 2019 12:14 pm

» Highest temperature hike after 128 years in sri lanka
by nimantha80 Sun Apr 14, 2019 4:47 pm

» DEBTS FREE AAIC MUST MOVE UP,3.36BN FROFIT, MARCH Q 1.00BN
by wisdom79 Sun Apr 14, 2019 8:15 am

» VONE , is it time to sell or holds
by Uaecoindubai Sat Apr 13, 2019 1:27 pm

» HVA WILL THEY RECTIFY THE REGULATORS QUARIES BEFORE DEAD LINE?
by nimantha80 Fri Apr 12, 2019 3:12 pm

» NDB Leasing Centers open at Gampaha, Negombo
by Uaecoindubai Thu Apr 11, 2019 8:17 pm

» BFN බොරු සෙලින් දාලා කොහොම හරි 11 වගේ ගානට 500000 එකතු කරගන්න කියලා අර 14 ට ලක්ශයක් සෙලින් දැම්මේ මේ ටේලර් මහත්තයාම තමයි
by dmtmadusanka Thu Apr 11, 2019 8:15 pm

» I met Karuna Today.
by Uaecoindubai Thu Apr 11, 2019 8:15 pm

» Look APLA its trending to 98LKR
by Uaecoindubai Thu Apr 11, 2019 8:13 pm

» ROYAL CERAMIC (RCL)
by Yahapalanaya Thu Apr 11, 2019 8:11 pm

» Look BPPL company
by Uaecoindubai Thu Apr 11, 2019 10:10 am

» PABC.N0000 ? Will come down to Rs. 11 - 12 level?
by Uaecoindubai Wed Apr 10, 2019 5:13 pm

» Any news on MBSL.N0000
by Uaecoindubai Wed Apr 10, 2019 4:56 pm

» New NDB Privilege Banking and Leasing Centres open in Kurunegala
by Soilconomy Wed Apr 10, 2019 11:30 am

» TIME TO WATCH - LOFC - BFN
by Uaecoindubai Wed Apr 10, 2019 11:20 am

» ශ්‍රිලංකාවේ ණය බරතාවය. Sri Lanka's Debt Trap
by soileconomy Wed Apr 10, 2019 7:28 am

» 2019 revised traffic fines
by Uaecoindubai Tue Apr 09, 2019 12:47 pm

» LLUB Surprise
by hammurabi Mon Apr 08, 2019 9:29 pm

» MARKET CRASH - GUARANTEED
by Uaecoindubai Mon Apr 08, 2019 5:11 pm

» Just 2% of investors control 95.7% of the stock market
by sanjulanka Mon Apr 08, 2019 8:47 am

» Lofc delisting??
by sanjulanka Mon Apr 08, 2019 8:17 am

» watch UBC -LDEV - BALA - LOFC
by karuna2 Mon Apr 08, 2019 7:43 am

» CHECK YOUR SELL ORDERS - BULLS ARE READY
by karuna2 Mon Apr 08, 2019 7:43 am

» REXP***REXP***REXP***REXP
by Uaecoindubai Sun Apr 07, 2019 11:20 pm

» Sena Yaddehige charged with insider dealing by Sri Lanka regulator
by Uaecoindubai Sun Apr 07, 2019 4:36 pm

» SOFT LOGIC TO BUY BFN ?????????
by Uaecoindubai Sun Apr 07, 2019 1:55 pm

» WHERE IS TELLER........market down.......ASI 5700...
by Uaecoindubai Sat Apr 06, 2019 2:43 pm

» GRAN VS TELLER
by Uaecoindubai Sat Apr 06, 2019 2:41 pm

» Our forum moderator Teller narrowly missed the year 2018 Nobel Prize for economics science to a pair of American economists, William D. Nordhaus and Paul M. Romer
by Uaecoindubai Sat Apr 06, 2019 2:35 pm

» BALA IS WARMING UP
by Uaecoindubai Sat Apr 06, 2019 10:38 am

» RHL is going to be interesting
by roshan1039 Fri Apr 05, 2019 11:33 am

» MGT - Collect n keep
by sanjulanka Fri Apr 05, 2019 7:21 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