Tuesday, September 16, 2008

Further Filtering Beyond Stochastics

Sometimes there is a need to further narrow one's buy candidates even further than what an oversold stochastic shows. One way is to look at the P/E ratios of the companies. This is the ratio of the stock price to its per share earnings.

I view low P/E companies as undervalued and therefore better candidates. I also like to look at the book value of a company. This is the theoretical value of the shares if the company was liquidated. If the stock price is less than the book value, I see it as undervalued. These should help to further narrow your choices when faced with many picks. Happy trading.

- Roger

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