The ever-higher stock market has made lots of folks rich and is worrying more than just a few. For anyone with money to invest in the stock market right now, there is a real risk of getting in just as the bottom falls out! We could be looking at a decade, like the one running up to the Financial Crisis in which the stock market will be relatively flat. As such, the task of the investor will be to find cheap investments with the potential for growth. But, are there any cheap investments left?
Finding Cheap Investments That Are Good Investments
When looking for cheap investments, investors need to constantly remind themselves that many cheap investments are really just value traps as they are cheap for good reasons. When are cheap investments the best investments? What you are really looking for are investments with good intrinsic stock value. The best stocks to invest in are those whose intrinsic value (based on forward-looking earnings) is substantially higher than their current stock price. This usually happens when the market reacts to temporary factors and discounts the stock. Here is a possible example of such a case.
Cheap Stocks Right Now
The Motley Fool writes about a couple of stocks that are absurdly cheap at this moment. The two stocks that they discuss are SciPlay, a smartphone game maker and Malibu Boats, a speedboat manufacturer. In the case of SciPlay, the market is looking at revenue growth instead of profits and discounting this profitable company. In the case of Malibu Boats, the market is concerned about two recent acquisitions at a time when recession fears are a real concern. However, these are both profitable companies with strong positions in their respective niches. So, if you are wondering are there any cheap investments left, take a look at either of these too. The Motley Fool article as more details.
Accurate Investment Valuations in an Aging Bull Market
The key to finding cheap and profitable investments in this market is being able to determine an accurate value of the stock going forward. So many stocks today are valued based on steady earnings growth. What happens if that growth cools off? Others are being propelled upwards by stock buybacks. What happens when the company does not have the cash to keep buying back their stock? Market Watch notes that while stock valuations have meant nothing for years, they are becoming important now.
While inaction has been the best course of action since the bull market in U.S. stocks began in early 2009, the risks have now piled up. According to my research, there’s a chance of near-zero returns for most stocks during the next 10 years and a very high likelihood of a 50% collapse at some point.
The risks of a prolonged trade war as well as other investment risks for 2020 and after are such that investors will do well to look at stock valuation and forward-looking earnings in both their current portfolio and any prospective stock purchases.