Finding Undervalued Stocks 3: Valuing Stocks using Intrinsic Value

Written by John B Keown


In "The Intelligent Investor", Benjamin Graham describes a formula he used to value stocks. He eschewedrepparttar more esoteric calculations and kept his formula pretty simple. In his words: "Our study ofrepparttar 111758 various methods has led us to suggest a foreshortened and quite simple formula forrepparttar 111759 valuation of growth stocks, which is intended to produce figures fairly close to those resulting fromrepparttar 111760 more refined mathematical calculations."

The formula as described by Graham, is as follows:

Value = Current (Normal) Earnings x (8.5 + (2 x Expected Annual Growth Rate)

Whererepparttar 111761 Expected Annual Growth Rate "should be that expected overrepparttar 111762 next seven to ten years."

The value of 8.5 appears to berepparttar 111763 P/E ratio of a stock that has zero growth. It is not clear fromrepparttar 111764 text how Graham arrived at this figure, but it is likely it representsrepparttar 111765 y-intercept of a normal distribution of a series of various P/E values plotted against corresponding growth figures.

Graham's formula takes no account of prevailing interest rates; atrepparttar 111766 time he last updatedrepparttar 111767 chapter, around 1971,repparttar 111768 yield on AAA Corporate Bonds was around 4.4%. We can adjustrepparttar 111769 formula by normalizing it for current bond yields by multiplying by a factor of 4.40/{Current AAA Corp Bond Yield}. Bond yields can be found on Yahoo!

Lets take a real-life example, using IBM. According to Yahoo!,repparttar 111770 expected growth rate for IBM overrepparttar 111771 next 5 years is 10% per annum (note data is only available for 5 years ahead rather thanrepparttar 111772 7-10 years Graham states, but this should not make a significant difference). EPS for IBM overrepparttar 111773 last 12 months is $4.95. Taking these values and plugging inrepparttar 111774 20 year AA Corporate bond yield of 5.76% (AA Bond yields are higher than AAA so will give a more conservative estimate of IV) in our adjustment gives:

See How Easily You Can Restructure Your Debts...

Written by John Williams


If You Know How Managing money and paying creditors on time is difficult for most people. There's temptation every where we look. In most cases, it is unexpected expenses or events that impair our budget. Such as:

Illness, followed by doctor bills; death of a loved one, car troubles, home repairs, braces forrepparttar kids andrepparttar 111757 list can go on and on. The fact is, no one expects to become financially troubled. It seems to sneak up on you atrepparttar 111758 worse of times.

You may believe that bankruptcy is your only option. It is true, filing a Chapter 7 Bankruptcy will clear you of any obligations to creditors; however, bankruptcy is devastating to your credit and time consuming.

There's other options available, such as, debt consolidation.

Debt consolidation is a broad term. There are different types of consolidation that may be compatible to your needs, such as:

* Government Debt Consolidation * Debt Consolidation Loans * Non Profit Debt Consolidation.

Depending on your situation and financial stability will determinerepparttar 111759 most appropriate consolidation program for you.

Debt consolidation isrepparttar 111760 process of using one large loan to pay off smaller ones. Normally, you will receive a lower interest rate, lower monthly payments; however, you may have a longer repayment period. Onrepparttar 111761 other hand, you will not have your daily life interrupted by harassing creditors. You can userepparttar 111762 money you save with debt consolidation to pay your current living expenses.

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