The Difference Between Value and Growth Stocks (Part 2)

Regardless of the previous behavior of the market, one can see with its recent performance that it is still a great investment tool.  According to Google, the Dow Jones Index was actually down to its low of 6547 on March 6,2009.  Now, it is currently at 8500.  That is over 30% up in just one 3 months.  However, as mentioned before, there are very few out there that can time the stock market that well in order to get those returns.

To continue from the previously written article, Value stocks are great choices for those who believe in holding a stock for the long term.  Below is the definition cited from Investopedia:

A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.  (Citation)

These particular stocks are viewed as being "undervalued" and typically do not have quick growth rates.  More characteristics of these stocks are the following:

1. Dividends 
2. Equity equals the amount of debt held by the company.
3. 2x Assets to liabilities.
4. Very low Price-to-Earnings 

Examples of these companies are well-established blue-chip companies that typically have a very long history of successful operation.  Some examples of these companies are the following:

1. IBM
2. General Electric
3. Wal-mart

As you can tell from these companies, they typically provide a service or product that is always in demand no matter the economic climate.  In addition to that, they have pretty high stock prices which do not fluctuate often.  Of course there is an exception to the rule (as seen over the past year) due to internal and external factors that can cause a company to reduce its market share and even fail.  However, most well established/well ran companies can usually weather any storm.

As hard and as nerve wrecking it may be, it is always a good idea to have some portion of your investment portfolio into stocks.  Whether your investment style is risky or stable, there are some stocks from each class that will fit your requirements to help provide the results you desire.

What are some stocks that you are invested in?

Stay Disciplined!