Biggest things you look for in a stock?

[James Boston]

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I generally invest in small camp-mid cap stocks because my income isn't that great at my age

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There's nothing wrong with small-cap and mid-cap stocks, but don't preclude large-cap because of your income. The two really don't relate.

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looks for a company with little competition

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always a plus

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low p/e ratio

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Don't get trapped into thinking low P/E = good stock. It can mean that, but it doesn't automatically.

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a stock that isn't too overvalued

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I don't know if you listened to what I, and several other posters, told you about the book value hang up you had. I saw you continue to post that advice after having it explained to you that it wasn't a very important metric. I'll say it again though. If you're defining over-valued as "market cap < book value," you don't understand valuation. Free cash flow! Learn it, live it, love it.

[michiganfan9]

I'm done looking at book value now

[michiganfan9]

thanx for the post, i'll start looking at free cash flow a lot more

[midas]

MIFan:

When looking at small cap stocks a few comments:

1. You need to look at stocks and how they trade relative to their peers.

2. PE ratio is not as important as implied valuation (market cap + debt - cash) to cash flow (EBITDA or EBITDA less maintenance capex)

3. You need to look at ownership - is management a big owner in the stock? Avoid small caps where managment or the Board has small ownership positions unless the stock is extremely undervalued.

4. If a small-cap is paying dividends something is wrong with the business fundamentals - why don't they reinvest money in the Company?

5. Another metric that is rarely used is cash on cash return (like a bond) If you were to buy this Company right now for its current implied valuation what would your return be if you just held the company for its cash flow?

[plj8624]

I'm surprised no one has mentioned dividend growth. You mentioned you like companies that pay dividends. Look for a couple large caps that have increased their dividends consistently for at least 10 years.

Read everything you can about investing and finance (books, magazines, internet), but do it with a critical eye. Best of luck.

[michiganfan9]

I agree with dividend growth, as long as the company isn't like phizer who pays 60% roe on dividends,they can spend the money more productively