What is the best stock to buy now? Finding stocks from stock screens and finding good stock that also works for you is great, but what if you just want a single stock and want to know the best single stock to buy today?
This is a good question but to answer it, this is a little bit more difficult. There are several factors that go into a stock price, but the bottom line is it’s worth currently what people are willing to pay. So the best stock to buy now would be the stock that very few people know about, but if they did they’d be willing to pay a lot more. In otherwords, if a company has been undervalued and neglected for awhile, yet the companies fundamentals continue to grow, the only thing preventing that stock from going up in value, is the institutional investors knowing about it. The future is uncertain, but eventually people will discover this “gem” and when they do the research, they will buy this stock all out, or at least goes the theory.
Now one trick to find good stocks are to first identify undervalued and neglected stock. Is this going to find you only the #1 stock and nothing else? No, but there may be a top stock among that group. How in the world are you to screen that down? Well any person can have the courage to buy a basket of stocks and have one of them turn out, is there a way to find a stock that is a lock? Warren Buffet thinks so, he says that diversification is a hedge against ignorance. This means that if you know everything there is to know about a company, you can invest in a company that you know is undervalued and that you know will grow, companies that can do so will attract more investor money in the future. Of course this requires you to know all about Benjamin Graham and finding deeply undervalued companies. However, there is one important thing that you may notice.
From gurufocus…
He introduced the first formula at age 79 and concluded from his results that one would have performed quite well from 1961-1976 by buying stocks with the lowest values of these three criteria:
A low multiple (e.g.,10) of the preceding year’s earnings;
A price equal to half the previous market high (“to indicate that there has been considerable shrinkage”);
Net Asset Value. (I presume this is the lowest price relative to book value)
In his next interview published in Medical Economics, September 20, 1976 titled “The Simplest Way to Select Bargain Stocks” Graham, then 82, proposed a simpler, more refined formula that consisted of:
PE Ratio of 7x-10x or less (Based on 2x current triple A bond rates)*;
Equity/Asset Ration of .5 or more (e.g. Debt/Equity >1).
* Calculate the maximum PE by dividing (2 x triple A bond rate) by 100. Example: 7% triple A bond would equate to PE of 7x (100/ (2
