| You are here: | About>Business & Finance>Investing for Beginners> Invest. Strategies & Styles> Value Investing> More Tips for Finding Hidden Value in the Market |
![]() | Investing for Beginners |
More Tips for Finding Hidden Value in the MarketBefore you can see a transformation on the horizon, it is vital that you understand the true source of a companys earnings (e.g., from an investment standpoint, Google is not a search engine; its an online advertising agency with prime virtual real estate that happens to be driven by search). Sara Lee, for example, is in the middle of a massive, sweeping restructuring program. If management executes well, the new company will be a fraction of its former size with less debt, fewer shares outstanding, and a core group of businesses upon which it can focus. At the end of the day, however, critics maintain that the source of the companys earnings will remain the commodity-like, low-margin, fiercely competitive packaged foods business; although the company may be in better shape for the future, it hasnt fundamentally changed its long-term prospects as its prosperity is still tied to a business growing in the low single-digits. Nevertheless, this can still represent a big opportunity for astute investors; in addition to the rich dividend yield, Sara Lee spun off Coach, a designer and retailer of luxury handbags, several years ago. Since that time, Coach shares have appreciated over 1,000%.
Management ChangeAssuming youve paid a rational price, the quality of management can have a massive impact upon the returns you, as an investor, earn on your stocks. Typically, managerial talent should be evaluated on two separate fronts: executive and capital allocation.
If you know of a company that has been plagued by either poor operators or bad capital allocation decisions, you may want to pay attention if a change in management is announced. In most fields with decent business models, a good executive can mean the difference between mediocre and spectacular returns.
Final Tips for Finding Undervalued StocksKeep in mind that these are just ideas for places where you can begin to seek for value. Sometimes, a stock is cheap because it deserves to be cheap - either the business model is falling apart or the management is unethical.For more great resources and helpful hints, check out our value investing resources. |
|
All Topics | Email Article | | | ![]() |
| Advertising Info | News & Events | Work at About | SiteMap | Reprints | Help | Our Story | Be a Guide |
| User Agreement | Ethics Policy | Patent Info. | Privacy Policy | ©2008 About, Inc., A part of The New York Times Company. All rights reserved. |


