Although as investors we all want more, there are different methods to arrive or strive for more – the classic examples are growth and value investing. Growth are those stocks which have a great product or service and the world keeps discovering it, for these companies most of the money the company makes is reinvested in attaining more growth. If the company is growing, then the stock price typically trades at a premium or higher multiples than other companies because of the basic supply and demand curve. Many technology stocks are considered growth stocks. In the industrial category, where there are higher barriers to entry, markets are steady and it is still possible to raise prices to keep a good margin these companies would be considered value companies. Given there is plenty of choice on the markets, there are lots of other choices.

John Reese wrote about value investing and noted investors tend to exaggerate the attractiveness of some stocks, often at their expense. And it is only a matter of time until the shift occurs.

Columbia University professor Kent Daniel recently published a study of the analysis of stock prices as they relate to book value. He found the average large-cap value stock’s price to book ratio is half the average large-cap growth stock. The difference is even higher for small-cap stocks. Since 1959, the average value stock’s price to book ratio has been a third less than the average growth stock. The research was published for MarketWatch.

What to do with the information?

Ben Graham believed a stock selling at or below its book value was a bargain. (if the company went bankrupt sold off its assets, the investor still makes money).

Joseph Piotroski, professor of accounting at Stanford looks at the book value as it relates to the share price, keying on stocks that end up in the top 20%.

John Neff a former Vangard Windsor fund manager for 30 years used low Price/Earnings or PE Ratios to look for undervalued stocks. Mr. Neff would start with stocks with low P/E Ratios that were half what the market average was at any given time. Next he would look for companies that had steady growth in earnings per share and solid dividends. Mr. Neff would measure total return – the EPS growth plus the dividend yield divided by the P/E ratio.  The next aspect was compared the total return to the market average or industry average and pick the best ones.

Mr. Reese of Validea Capital believes 3 stocks are worth looking at Penske Auto, B Riley Financial and CVS Health.

Linking to dividend paying stocks, the great thing about dividend stocks if the price goes higher you can receive capital gains, if it stays flat you receive an dividend or income or yield for holding the stock. If the market goes down, because the companies are profitable, they bounce back before the growth stocks. In the stock market, there are many choices for dividend companies and as you do your homework you narrow the field to pick the companies that you can easily follow.

There are more questions than answers, till the next time – to raising questions.