The financial press can be strange. I frequently run across interesting articles about various companies in my search for possible investments, so now and then I find useful lists of companies to think about. But sometimes, I still end up scratching my head.
For example, in its Jan. 5 issue, BusinessWeek magazine has an article about some stocks recommended by a handful of respected money managers. It listed five of them in a little table that had three columns: the company name and ticker, the reasons one might buy the stock, and the recent stock price.
I have to ask: What's with the stock price? It was as of Dec. 12, and by the time anyone read the article, it may well have changed considerably. But that's not my main beef. My main beef is that the price by itself is close to meaningless. It would be meaningful if one or more prices were under a dollar or two -- that would be a penny-stock red flag. But the prices were all well above $10 per share.
I shake my head because a stock's price shouldn't really matter much to us. If we want to invest in the company and we have $3,000 with which to do so, we can simply buy 100 shares if it's trading around $30 per share, or 175 shares if it's trading around $17 per share, or 36 shares if it's trading around $83 per share. Because remember -- a stock can be a screaming bargain at $250 per share and wildly overvalued at $2 per share. MasterCard (NYSE: MA ) , for example, was recently trading around $150 per share and is viewed by some as a better buy than Discover Financial Services (NYSE: DFS ) at $10.
To be more useful, the table could have included some other metrics for each company, to help us know more about them. Their profit margins would have hinted at the brand and pricing power they enjoy. Their return on equity would have reflected their efficiency. Even their price-to-earnings ratios, if compared to their historic averages, could have suggested how undervalued they might be. So a more useful chart would look like this:
|
Stock
|
Dec. 31 Price
|
Current P/E
|
Return on Equity
|
Profit Margin
|
|
Coca-Cola (NYSE: KO )
|
45.27
|
17.7
|
27.8%
|
18.7%
|
|
Dow Chemical (NYSE: DOW )
|
15.09
|
5.5
|
14%
|
4.3%
|
|
Hewlett-Packard (NYSE: HPQ )
|
36.29
|
11.2
|
21.5%
|
7%
|
|
Schering-Plough (NYSE: SGP )
|
17.03
|
N/A
|
(16.3%)
|
(11.3%)
|
|
Tesco (OTC BB: TSCDY.PK)
|
15.85
|
13
|
19.5%
|
4.4%
|
Source: Yahoo! Finance and Capital IQ, a division of Standard and Poor's.
The good news is that at least readers got some investing ideas, and we can always research them further, seeking numbers that will tell us more.
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