Wednesday, February 1, 2012

Buying and Selling a Stock: Part 1

Blog article started at about 8PM Central Standard Time February 1st, 2012.

Here we go. There were only four votes, yet around 300 unique visitors in the time the poll was open. However, like many things in life if you don't take the chance to vote, you don't get a say in what happens. So I'm going to go through the process of buying a stock and describing the process to everyone. Here we go with Part 1: Research

Step 1: Log into your brokerage account. For me that is ShareBuilder. I chose it because it links to my ING Direct account, which used to have great interest rates. I also have a Fidelity Account.

Step 2: At the current moment I am into "net asset" value stocks, preferably Micro and Small Capitalization (Cap). So I go to Research > Find Investments > Investment Screener. Then I select on the Basics tab > Small and Micro. On the Fundamentals tab >  P/E Ratio and Price to Book. We will pick a P/E Ratio of 0-15X and a Price to Book Ratio of 0-1X.

Since that gives us a huge list of 283 possible companies, and I am too lazy to go through them all we have to make the list smaller. Let us stick with only Small Cap stocks because I have a feeling some of my readers would be terrified to invest in a Micro Cap stock. Let us also add companies with a Debt to Total Cap ratio of less than 50% because a company with less debt is probably a good bet. We end up with:

That gives us a very manageable list of only nine companies.
The List of Possible Value Companies
Unfortunately, none of those jump off the page as best investments ever. However, I am interested in Ruby Tuesday because I recognize it and Interactive Brokers Group because it has nearly no debt and a very low P/B. Here is where it gets tedious. You have to read. Let's start with Ruby Tuesday.
Ruby Tuesday Stock Overview
Now, the first thing I do is read the Profile and check some News & Events. I won't show you every screen shot but I didn't know Ruby Tuesday owned Mozzarella's and Tia's. I vaguely remember a Tia's somewhere. They also use Tiffany lamps in their restaurants. I had no idea. Oh, it seems the CFO is going to retire in June. At first a CFO leaving raises a warning flag for me. The most recent quarter results announced January 5th say that they lost $0.03 per share, which beat analysts expectations of a $0.06 loss per share. Beating analysts expectations is good, but losing money without any specific one time events such as a large investment or spinoff is not a good sign. However, the economy was not great this fall so fewer people probably went out to eat, that probably explains it. It seems almost all restaurants were down for the year.

Finally I click on the Financials tab. This is where the real meat of the kill is. They have only $10M in cash, but including property have a whopping $1.19B in assets. However, they have some significant long term debt and accrued expenses for liabilities of $595M. That means they have a book value of $592M. Thus the Price to Book ratio of .82. Additionally, the 52 week high is $14.48 and the 52 week low is $6.35. At a share price of $7.74 this looks like a good deal. However, the price to earnings ratio is 14.7 while the statistical 300 year average is 12.1 for large companies I believe. Plus, they did lose money the last quarter. Their stock price has been dropping over the last year, which often indicates that either the company is going bankrupt eventually, or set to go back up again. It seems that prior to 2007 the stock traded at $20-30 consistently. Again, that can be a good sign that it will likely rise again.

However, due to the high P/E ratio, recent Q2 loss of $0.03 per share, and my skepticism about Ruby Tuesday as a restaurant of choice and the overall American dining out prospects for 2012 I am not going to invest, but I will keep Ruby Tuesday in mind if I hear anything. Also to see if It goes up to $10 a share or something next month.

That is all for tonight. I've been typing for over an hour. Just because I research a stock doesn't mean that I have to buy it. Furthermore, for someone who better understands the restaurant business this might be a great investment. I would suggest this investment more than 90% of the companies out there based on the numbers that we looked at tonight.

Article finished 9:23 PM CST Wednesday February 1st, 2012.

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