 01/06/2021 How to Compare Stocks and Find Trades ✔️ The P/E ratio is overrated — here's what you should be comparing. ✔️ The market isn't efficient ... find out why that can be a good thing.  Looking for undervalued stocks?
There's an old method for picking cheap stocks. You use the P/E ratio to compare competitors' profits and share price. It tells you if one is cheaper than the others.
But it doesn't work very well.
People want a simple equation to tell them which stocks are going up. The P/E ratio gives you a formula ... But it doesn't tell you if the price is going up.
There's a significant flaw with comparing P/E ratios. I'll explain how it all works in a bit.
If you're looking for the next hot play, it's worth comparing companies. I'll explain the method I prefer to use, it delivered some big winners in 2020. But my process is based on a totally inefficient market.
Looking for value using the P/E ratio assumes the market is efficient. But it's not.
I'll explain. Let's start at the beginning... Sponsored Ad  If you're tired of grinding your life away…
If you've had enough banging your head against the wall, figure it out…
If you're ready to look at yourself in the mirror and say - "I'm not doing this anymore"...
What's a P/E Ratio?
It's short for the price-to-earnings ratio. It's a method for evaluating stocks.
To calculate the P/E ratio, you divide the company's stock price by the previous year's profits — this a decent way of comparing companies.
Companies have different stock prices, market caps, and earnings. You can't compare these numbers side by side. The P/E ratio allows you to compare companies apples to apples.
Often, investors compare the P/E ratio of competing companies in a hunt for undervalued stock. The working theory is simple. If the P/E ratio of one stock is much lower than its competitors, then it is considered undervalued.
Some investors take this as a sign to buy the stock. Assuming the market is efficient, the stock price should rise to get more in line with its competitors.
But it's not actually that simple.
There's a massive flaw in this line of thinking. In an efficient market, the stock wouldn't get out of sync with the rest of the sector in the first place.
The P/E ratio is not a secret. It's posted on every finance website — Yahoo! Finance, MarketPlace, FinViz ... the list goes on.
There's a reason P/E ratio can vary between companies that are in the same business. To understand this, you need to know how the market works. How The Market Really Works
The market is forward-looking. Investors are pricing in future earnings.
But no one actually knows what the future earnings will be. If you could predict the future, you could probably make a fortune. But you can't. Nobody can.
The P/E ratio reflects old earnings but can give us an idea of what investors expect to happen in the future.
For example, Apple Inc. (NASDAQ: AAPL) has a relatively high P/E ratio. That tells us investors have a lot of faith that it will continue to grow and make groundbreaking products.
Meanwhile, Xerox Holdings Corporation (NASDAQ: XRX) has a relatively low P/E ratio, despite the fact that the company is profitable. This tells us the market doesn't expect growing revenues in the future.
A higher P/E ratio indicates that investors are expecting growth.
Cheap stocks are cheap for a reason. Especially big, well-known companies.
So even though a bargain stock can feel like the right trade, it often keeps falling. I'm more interested in the higher P/E ratio. I want to find a stock that others have faith in.
But of course, there's risk involved. If the company's earnings fall behind investor expectations, watch out. There could be a big sell-off.
On the other hand, a company with a low P/E ratio with a surprisingly good earnings report could spur a buying frenzy.
Either way, it's not an effective way to trade as far as I'm concerned. There's just too much guesswork. So here's what I'm looking for... Sponsored Ad  Matt Monaco is 22 years old.
And he's verified that he just cleared $409,000 in profits as an at-home trader (in just one of his accounts)!
Almost ALL of it from 2020 alone.
Now, this is NOT typical for an average trader (but Matt is no average guy).
How to Compare Similar Stocks
I've got another method that tends to be much better for picking stocks on the move. It's a process that almost seems too easy, but it's worked time after time for me.
Let's look at the lithium craze from fall 2020. It all started with one hot stock.
As Tesla, Inc. (NASDAQ: TSLA) ripped to new highs, everything related to electric vehicles (EVs) was climbing too. Lithium-ion batteries are an essential component for electric vehicles. So as the demand for EVs grows, so does the need for lithium.
Only a few publicly traded companies produce lithium. But they didn't all jump at once.
Lithium Americas Corp. (NYSE: LAC) broke out on September 28. It went from $11 and peaked at $17 on October 5.
There was no specific news related to the company or the stock. It was all based on the expected increased demand for lithium.
After seeing the LAC breakout, it was worth looking for other lithium stocks.
Another lithium producer, Livent Corporation (NYSE: LTHM), broke out a few days after LAC. On October 2, LTHM broke out to new highs for the year. It blew through $9.50 and spiked up to $12.50 on October 8.
Both the stocks moved based on an assumption. Traders believed the demand for lithium would increase. There was no news about the business structure or actual earnings.
But the part that's worth noting is that one stock jumped days before the other. That's what I call an inefficiency... Find The Next Hot Stock
I'm always on the hunt for inefficiencies. The lithium example is just the tip of the iceberg.
Lithium Americas and Livent aren't exceptionally well-known companies, so they weren't on a lot of investors' radars. And their sector is relatively niche.
An increase in demand for one can spur a big move. And one big move can spur another. That's known as a sympathy play.
I've been watching another stock in a niche market. Mind Medicine (MindMed) Inc. (OTCQB: MMEDF), which is in the psychedelic mushroom business, has been on fire lately.
Oregon recently passed a law allowing for the medicinal use of mushrooms, and this stock's been soaring ever since.
I'm not aware of any other psychedelic drug producers that are publicly traded. But there is a mushroom producer that could rise with MMEDF.
Rumor has it that MMEDF will be uplisted to the Nasdaq this year. If that happens, it will draw a lot of attention.
So add Farmmi, Inc. (NASDAQ: FAMI) to your focus list. It's a mushroom producer of the non-psychedelic variety.
The hype over MMEDF could provide some sympathy plays. FAMI is a prime candidate.
Remember, the premise — the market is inefficient. Sponsored Ad  Jack Kellogg is closing in on an astounding $2M in total trading profits.
He is far from the typical student and has but in extraordinary hard work and studied for years...
And now he's one of my top students.
Want to see how he did it?
The Market Is Inefficient
The idea that the stock market is efficient is ludicrous. I'd never have been able to make as much as I have in the market if it was truly efficient.
I've been trading for over 20 years now and have made over $7 million in profits.*
As a swing trader, I try to anticipate and exploit the inefficiencies all around me.
Everyone uses the P/E ratio to try and find cheap stocks. That's why it doesn't work.
Self-sufficient traders know to find an edge that's outside of everyday thinking. But you don't have to look too hard to find the opportunities the market offers.
Study the past to prepare for the future.
It compares,
Paul Scolardi Editor, Swing Trade Millionaires P.S. Trading is hard. Especially if you don't have someone to show you the way. If you want someone to show you the ropes… and make things a little easier for you… Then you should click here to see more.
Get Immediate Access (Free of Charge) Click to read these free reports and automatically sign up for daily research and other important offers. You can unsubscribe at any time.
 66 West Flagler Street STE 900 Miami, Florida 33130 United States
*Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here.
This is for information purposes only as Millionaire Media, LLC is not registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. We are not a licensed investment professional, and we do not give investment advice. Always consult a licensed investment professional when seeking investment advice.
Millionaire Media, LLC cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing.
Millionaire Media, LLC in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media, LLC accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns. |
No comments:
Post a Comment