General Stock Investment Strategies/buy out

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Question
Hello, how are you doing? I have a question about a stock I own. The stock is Sprint. I bought this stock and since I have owned it, its share price has risen. I could sell and take a profit but they are getting ready to be bought out by another company. When a company is bought out how does that effect the stock I now have in the company? One other question, when you are looking for stocks to buy what are the things you look for. I have used stock screeners but donít know the best things to look for that give the companyís stock price a better chance to go higher in the future.

Thank you in advance for your help.

Answer
Torrey, I'm doing okay, thanks.

Re: Sprint stock. My guess is, from looking at a chart, that the news broke about Sprint Nextel being bought out back in mid April. This is where the big fluctuation in the price occurred. Once the news breaks and the price moves, unless there are other suitors for the company or there are discoveries made after that, most of the movement in the stock is over with. In this case Sprint Nextel went higher which was good for you. So if you are not hearing from either Sprint Nextel or the acquiring company in their news releases that there might be unfolding circumstances that might affect the price, then I'm suggesting that you have seen all the upside that the price is going to move. Now with all this said I'm assuming that the Sprint Nextel stock will be no more after the acquisition date. If the stock will still be around after the acquisition date then you will just have to monitor all the events pertaining to both companies and make the call yourself. There could be a lot of variables to monitor, any one variable could take hours to dissect and to explain to another.

When I look at a company I do my own screening process, I don't use other sites screeners for my research. But to give you a start you might want to stick with companies that have been around a long time, twenty, thirty years or more. Then the old adage of buy low sell high comes into play, but not only about price. Try to get the history of the P/E ratio (Price to Earnings ratio). If the company is increasing sales and the P/E ratio is on the low end of it's 10 year history range then you might want to take some time to look at other things about that company. What the P/E is telling you is how many times the earnings of the company has to be multiplied in order to equal the price. Stated another way it tells you how many years the company will need to earn those earnings in order to equal the price you are paying for it. In general the market has an average P/E equal to 16, so anything under 16 and you are leaning more to being a value oriented purchaser. (I am value (vs. growth) oriented) But this "16" is for the market as a whole, any one company will have it's own individual personality or pattern so you will have to compare a company more to itself. Just start by looking for low P/E's and, you might also look at well established companies that have not had much price movement in a couple or more years. No price movement, low P/E's, growing revenue, growing earnings- these are some things I like.

I hope this helps you to get started. If you have more questions please feel free to write again. If you are using a particular screening tool and can give me an address then I might be able to give you more specifics of what I might do given the same tool once I can look at it.  

General Stock Investment Strategies

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Todd

Expertise

I can answer general questions about stock investing. I am not a trader and do not have much ability to answer questions on trading. I am a long term investor, so those questions are fair game.

Experience

I have been a private investor for decades. I have been specializing more in stocks since around 2000. I publish my own newsletter for long term investors. My website is stockopinionletter.com.

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Todd Hope's Stock Opinion Letter

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Self taught.

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