Jim Cramer - On Value Stocks

1 00:00:00,380 --> 00:00:04,030 value stocks are the third most conservative kind stock worth owning 2 00:00:04,030 --> 00:00:08,210 all value stocks are cheap but not all cheap stocks have value 3 00:00:08,210 --> 00:00:11,280 actually let's not call value stocks cheap 4 00:00:11,280 --> 00:00:14,459 value stocks are inexpensive their low-priced 5 00:00:14,460 --> 00:00:18,509 bad stocks are cheap with a good value stock 6 00:00:18,509 --> 00:00:22,470 you're getting great merchandise that's been put on sale for bad reasons 7 00:00:22,470 --> 00:00:26,089 not shoddy merchandise that's been marked down because it's not worth very 8 00:00:26,089 --> 00:00:26,839 much 9 00:00:26,839 --> 00:00:31,359 all mad money when I go for value I usually do a pretty good job of 10 00:00:31,359 --> 00:00:33,240 separating the wheat from the chaff 11 00:00:33,240 --> 00:00:36,860 value stocks often pay high yielding dividends 12 00:00:36,860 --> 00:00:40,390 not because the companies had nothing to do with their cash but because they've 13 00:00:40,390 --> 00:00:45,130 gone so low that regular large-sized evidence turned into your mom gets once 14 00:00:45,130 --> 00:00:50,120 not all value stocks pay dividends summer companies that when you look at 15 00:00:50,120 --> 00:00:50,380 their 16 00:00:50,380 --> 00:00:54,570 underlying assets are just priced way too low for bad reasons 17 00:00:54,570 --> 00:00:59,290 I'll tell you about valuation later on right now I just want to give you a feel 18 00:00:59,290 --> 00:01:01,320 for the different breeds have stocks 19 00:01:01,320 --> 00:01:05,519 value stocks that usually come down for reason that reason being either 20 00:01:05,519 --> 00:01:07,229 something bad about the company 21 00:01:07,229 --> 00:01:11,060 word sector or something your rational about the market 22 00:01:11,060 --> 00:01:14,439 if you're going to buy value stocks 23 00:01:14,439 --> 00:01:18,649 you want to be sure that will go up value investors have a longer time frame 24 00:01:18,649 --> 00:01:20,380 in growth investors but it's not an 25 00:01:20,380 --> 00:01:25,310 infinite time frame on the show I don't recommend value stocks unless I can 26 00:01:25,310 --> 00:01:28,030 explain to you why they're going to come up 27 00:01:28,030 --> 00:01:32,780 and you're not allowed to buy any stocks unless you can explain to a friend who 28 00:01:32,780 --> 00:01:34,229 knows nothing about the market 29 00:01:34,229 --> 00:01:40,219 why that stock is going higher a good example the value stock 30 00:01:40,219 --> 00:01:44,109 again as I record this program it may not be a value stock when you listen to 31 00:01:44,109 --> 00:01:44,530 this 32 00:01:44,530 --> 00:01:51,340 is Walter industries WLT which I talked about all made money on June 23rd 2006 33 00:01:51,340 --> 00:01:56,060 at the time water was a value stock because of the huge discrepancy between 34 00:01:56,060 --> 00:01:57,100 its value 35 00:01:57,100 --> 00:02:02,549 and the value of its underlying assets Walter was a two billion dollar company 36 00:02:02,549 --> 00:02:06,450 with a number of different businesses it produced high-quality call 37 00:02:06,450 --> 00:02:09,840 the kind used to make steel it at a home building business 38 00:02:09,840 --> 00:02:14,760 and it also owned eighty 5.5 million shares of a company called 39 00:02:14,760 --> 00:02:17,819 Mueller water products MW a 40 00:02:17,819 --> 00:02:24,450 when I recommended water that position in your was worth 1.3 billion dollars 41 00:02:24,450 --> 00:02:29,000 that met the market was valuing waters Colin home building businesses 42 00:02:29,000 --> 00:02:34,000 it just seven hundred million and that was way too cheap water became 43 00:02:34,000 --> 00:02:39,189 inexpensive because in had been beaten up during May 2006 a really terrible 44 00:02:39,189 --> 00:02:40,459 month for stocks 45 00:02:40,459 --> 00:02:44,930 but even before belted forty eight dollars and 39 cents 46 00:02:44,930 --> 00:02:49,379 where it was when I recommend it the stock was cheap when I talked about 47 00:02:49,379 --> 00:02:50,578 water on the show 48 00:02:50,579 --> 00:02:54,530 it was trading at less than nine times expected 2006 49 00:02:54,530 --> 00:02:59,349 earnings even though it was expected have 20 percent growth going forward 50 00:02:59,349 --> 00:03:02,390 it had a price to earnings ratio ugh 51 00:03:02,390 --> 00:03:07,299 eight-point 8 and a price to earnings growth rate just 52 00:03:07,299 --> 00:03:12,610 0.44 other find those terms more thoroughly when I tell you about the 53 00:03:12,610 --> 00:03:15,110 homework you should do wanna stock in just a little bit 54 00:03:15,110 --> 00:03:18,930 take my word for the moment those two numbers made the stock 55 00:03:18,930 --> 00:03:21,989 inexpensive based on the value of its assets and its growth 56 00:03:21,989 --> 00:03:26,569 and that's what makes a great value stock that's what makes it a gift if it 57 00:03:26,569 --> 00:03:27,390 goes lower 58 00:03:27,390 --> 00:03:31,560 there's no reason you can own specular stocks 59 00:03:31,560 --> 00:03:35,319 high-growth stocks consistent growth stocks in value stocks of the same time 60 00:03:35,319 --> 00:03:40,459 the name the games diversification you want to own different kinds of stocks 61 00:03:40,459 --> 00:03:44,409 but depending on those variables we talk about before a twelve-person alley 62 00:03:44,409 --> 00:03:49,439 you want to own different amounts each kind stock if your conservative you want 63 00:03:49,439 --> 00:03:51,030 more value more consistent growth 64 00:03:51,030 --> 00:03:54,310 and less high-growth with maybe no speculation at all 65 00:03:54,310 --> 00:03:59,409 if you're young and lot the skydive you want to own a speculative main 66 00:03:59,409 --> 00:04:03,400 and high-growth stocks but you still should have some consisting growers in 67 00:04:03,400 --> 00:04:04,659 value stocks 68 00:04:04,659 --> 00:04:10,108 just not as much exposure someone who's more risk-averse 69 00:04:10,109 --> 00:04:14,249 know that you've taken a good look at how old you are how much money you have 70 00:04:14,249 --> 00:04:18,478 what kinda temperate your saddle with and one given those three things 71 00:04:18,478 --> 00:04:22,310 your investment goals or you can get down to the business of watching Mad 72 00:04:22,310 --> 00:04:22,819 Money 73 00:04:22,819 --> 00:04:26,310 and trying to turn my advice into stock market gold 74 00:04:26,310 --> 00:04:29,430 if you know yourself you'll know which stocks are for you 75 00:04:29,430 --> 00:04:32,740 but if you want to buy a may have money stock something I pitched 76 00:04:32,740 --> 00:04:36,250 then I'd really appreciate it and I think your wallet would appreciate it 77 00:04:36,250 --> 00:04:36,949 too 78 00:04:36,949 --> 00:04:41,100 if you follow a bystander operating procedure for researching buying and 79 00:04:41,100 --> 00:04:41,800 selling stocks

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