A Warren Buffett entry point is usually when you find that hard to find stock having its present price beneath the recognized value.
Warren Buffett won't buy a stock that he wouldn't feel relaxed possessing for the following 10 to 20 years. He seeks companies that are:
- Run by trustworthy executives
- Having excellent company economics (their product or service can thrive)
- A bargain (the present-day price is lower compared to the recognized value)
Towards the end of '08, Buffett commenced selling his bonds and purchasing U.S. stocks, so much that his personal trading account, that had been once all bonds, may soon be all equities. The reason why? Buffett reveals:
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now. In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price.
Any stock to be eligible as being at a Warren Buffett entry point should have the price to earnings ratio on a 10 year low. For a price to earnings ratio to get this low, there ought to be a good reason investors are shunning the particular stock. Supply versus demand complications are just this type of superb rationale. It isn't really an undesirable business, telling lies managing, or some other scam, it's entirely beyond the firm's internal operations. A good example of this was Seagate several years ago when there was so many hard-drives worldwide and so they were forced to nearly give them away. A few years later, the oversupply worked itself off and the shares went back into a strong uptrend once again.
JA Solar (JASO) is at a Warren Buffett entry point. It's sold off along with most other China solar power companies. The whole Chinese solar powered energy sector is undervalued at the moment.
The P/E on JA Solar (JASO) is really a sizzling 3.5 and has endured this level for quite a while as desire for this stock has dried up.
You will find very similar price to earnings ratios throughout almost all China solar technology stocks.
So why the heavy sell off across this complete industry? There exists an oversupply of solar energy panels right now.
The oversupply of solar PV panels at the beginning of 2011 is gradually being wound down, but virtually every solar PV maker is also broadening production capacity in anticipations regarding improved demand a few years from now. The current PHOTOVOLTAIC book-to-bill ratio is essentially even, with $101 of brand new orders coming in for every $100 of actual revenue. In the second quarter of 2008, the book-to-bill ratio surpassed 2, with more than $200 worth of brand new orders for every $100 of revenue.
To be able to endure the declining order rates, photovoltaic manufacturers ought to be fiscally strong, be either a low-cost supplier or perhaps a important technology innovator, as well as, maybe most important, possess a attentive project pipeline to absorb production.
So this supply vs demand difficulty still has a couple of years or so to work itself out. That's too long for the majority of investors and so they have sold and move on to other pursuits.
Nevertheless if you are going for a Buffett entry point in JASO, then now could be the perfect time to think about a good entry. Your hold time with this stock must be ten years. You are in simple terms purchasing JA Solar (JASO) when nobody else wants it and blood is running in the streets. Your idea then should be to hold it until everybody desires it after which sell it to them at prices which are 150% to 500% higher than what you bought it today.
Disclosure: I do not hold any shares of JA Solar (JASO) neither have I been given any money or anything to promote it.
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