The assets can be tangible or intangible assets. Peter Lynch says to look for assets of the company that are underappreciated by the market. I think one such example of a company is Apple before Steve Jobs went back and took over as CEO – after his return, he introduced the legendary iPhone and many other innovative products like the iPod.įor turnaround companies, the strength of the balance sheet is very important because they need to be able to get through the rough situation if there is any possibility of a turnaround. Turnarounds are investment opportunity for companies that we think are currently in a bad position and is able to turn itself around. As of 1st February 2020, it is about $50. But when it goes down, it also goes down fast it went down from about $60 to $30 in less than six months after that. In the last memory cycle, Micron went up from about $10 in 2016 swiftly to about $60 in 2018. When the cycle turns up, the stock price also goes up pretty fast. Personally, I made good money buying Micron – a cyclical memory company’s stock – some at $34 in 2019. With cyclical companies, the trick is to know when to buy during the down cycle and exit during the upcycle. Memory prices are another example of a commodity that usually moves up and down in cycles. It could be companies in the oil industry as oil prices generally move up and down according to the supply and demand at the time. CyclicalĬyclical companies are companies with their profits moving up and down in cycles. That means companies that possibly sell necessities like Unilever or P&G.ĭollar discount shops might also be recession-proof too because, in a recession, people tend to be more budget-conscious and shop more at discount stores. Peter Lynch says that they are likely recession-proof companies. They no longer grow as fast as a fast grower but also not as slow as a slow grower. Stalwarts are somewhere in the middle of fast growers and slow growers. Slow growers may be considered for income investors seeking stable dividend-paying investments.īut for slow growers, we also have to be wary it is not in a sunset industry if it is, the earnings may be on a perpetual decline, and the dividends will eventually be cut. More than 100% is a warning signal as it will not be sustainable anything below 60% is conservative and more sustainable, in my opinion. With this kind of dividend-paying company, we should look at its payout ratio, which shows the percentage of its earnings paid out as dividends. The best kind of dividend-paying companies are those that pay dividends, and the dividend grows consistently year by year. Slow growers are companies that usually pays dividends. The opposite of fast growers is slow growers. Meaning, the valuation of the company may still seem ok even though its PE ratio is high – relative to its growth rate. So if a company has a PE ratio of 30, but its growth rate is 60%, its PEG ratio is less than one, which may show that the company is undervalued relative to its growth rate.
Simply put, PEG ratio is the PE ratio of a company over its EPS growth rate. Peter Lynch is also the one that I learned PEG ratio from. I use it when I look at a fast-growing company with a high PE (price to earnings ratio). One thing that I look out for when analyzing fast growers is the PEG ratio. These kinds of companies tend to be underappreciated.įrom my experience, fast growers tend to sell at a premium. The best kind of stock for fast growers are those that not owned by many institutions and are rarely heard – and they do not have a lot of analyst coverage yet. The key to investing in this type of company is to be wary and exit when the growth rate slows down. The first type of company is called fast growers.įast growers are companies that have proven to be able to grow their earnings per share by about 25% a year on average. In Peter Lynch’s one up on wall street, he views investments in the stock market based on six types of companies. Peter Lynch One Up on Wall Street Key Takeaways: He managed the Magellan Fund at Fidelity Investments between 19 and returned an average of 29.2% per year in those times. Peter Lynch is a legendary value investor that has one of the best investing track records ever. I probably first read the book when I was about the age of 20 or 21, and now, after about five years in the market, I can tell you that the lessons hold. Peter Lynch’s one up on wall street book was one of the first investing books that I read.
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