Reference no: EM131963496

STOCK VALUATION INTRODUCTION P/E Ratio You've probably heard financial analysts comment that a stock is selling for some number "times earnings," such as 30-times earnings or 12.5-times earnings. This means that P, the price the stock is currently trading at, is 30 times higher than E, the company's annual earnings per share, or EPS.. However, for now, all you need to know is that value investors like the P/E ratio to be as low as possible, preferably even in the single digits. The number that results from calculating P/E is called the earnings multiple. So a stock that sells for $50 (P) and generates $2 EPS (E) would have an earnings multiple of 50/2, or 25. A value investor would normally pass on this stock. (For more information, readInvestors Beware: There Are 5 Types Of Earnings Per Share.) Earnings Yield Earnings yield is simply the inverse of the earnings multiple.. So a stock with an earnings multiple of 5 has an earnings yield of 1/5, or 0.2, more commonly stated as 20%. Since value investors like stocks with a low earnings multiple and earnings yield is the inverse of that number, we want to see a high earnings yield. Orimarily a high earnings yield tells investors that the stock is able to generate a large amount of earnings relative to the share price. Go to the Yahoo Finaance Stock Screener at https://screener.finance.yahoo.com/stocks.html (Links to an external site.) (Links to an external site.) (Links to an external site.) This tool will allow you to search for stocks using various search criteria, including industry, PE Ratio range, Dividend yield etc. Locate three stocks that you believe are a good "VALUE" based upon your search. as a rule of thumb, you should always compare your investments to their peers within the industry. For example if you compare Ford Motor with Toyota, you will see that there is little variance between the PE ratios and the dividend yield of these two firms. If, however, Ford was yielding much more (higher dividend yield) than Toyota and other automobile manufacturers, this might indicate that Ford is a far risker investment, because a yied that varies from the industry average is a warning sign. After you screen for good value stocks based upon whatever screeing criteria you choose, discuss the three investments, why you think they are good values right now, and what criteria you used to screen for these stocks.