#1. A strong financial positionThis means looking at debts and assets. A cheap stock relative to earnings is not cheap if the liabilities are so great that the company is going into bankruptcy. Make sure the company has sufficient reserves to survive the crisis and conservative debt levels.
#2 As many favorable operating and financial ratios as possible
Return of Equity (ROE), Return of Assets (ROA), profit margins, low expenses. All that Stuff to analyze carefully.
#3 A higer rate of earning growth that the S&P500 in the immediate past, and the likelihood that it will not plummet in the near future.
Contrarian companies have already been to the dog house, they have often made enormous loses and this is what put then where they are today. If the company makes even a modest profit therefore, the growth in earnings will probably astronomical, so this is not an onerous condition.Keep an eye out for companies that still have a long way to fall. Do not look into the wall street forecasts to a certain extent, to see if forecasts show huge continued loses. It is often the case that a stock will not pick up straight away when it appears the worst is really over, so there are still opportunities for contrarians when they do take advantage of analysts research.Pay little attention to forecasts. But, it found that researchers are correct often enough about the general direction of earnings that he knows to avoid a stock when the researches are still overwhelmingly convinced that earnings still have further to fall. There is a difference here. Analysts may well be out by 44%, but if they say earnings will continue falling then he may well just hold off purchases until the worst appears to be over. This is a much simpler and less error prone approach than is commonly used and does not depend on analysts having any great precision.
#4 Earnings estimates should always lean to the conservative side
Graham and Dodd’s “Margin of safety” pops up to say “hello”. If you cut the forecasts in half, but even still the company looks alright, you may have a potentially rewarding investment.
#5 An above average dividend-yield, which the company can sustain and increase
This of course relates to the previous for indicators, the dividend cover (ratio of earnings per share divided by dividends per share, proportion of profits as dividends) should be reasonable. A cut in the dividend won’t help the share price at all, so if the company pays one then make sure they can keep it going.
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