Sunday 2nd April, 2006

 

Compare EPS before you buy

 
 
 
 
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Water is being described as the blue gold in an era of investment opportunity, and in certain circles it is now suggested that within 20 years, the emerging water cartel will rival the current Opec countries for trade and economic dominance.

For this reason, equity in large water producing companies may be an excellent stock to buy, on the world market. Remember New Orleans, although the levees had burst their banks, one of the major demands that could not be met was the need for drinking water and water to wash!

The world supply of fresh water is not increasing, and less than two per cent of available supply is not described as fresh water! This opens the market for water purification technologies and plants. The outcome may suggest that here lies an emerging opportunity for big dividends on the stock market.

The gilt edge in reaping huge stock market investment returns resides in an ability to predict what’s likely to happen in consumer demand, years before it happens. They call it foresight, and it’s the cloth from which visionaries are cut. Fresh water is just an example.

Blue chip stocks aside, the opportunity to win big-time on the stock market from a portfolio of tired old stocks, is uninviting to say the least!

And to get in on the blue chip, you have to start with a lot of money. For example, using recent quotes, you will need about $17,000 to own a mere 200 shares in a top bank trading on the exchange.

To own an ordinary share in average companies that trade on the exchange, will require about $10- $14 to purchase a solitary share.

To select, you have to look at what is called EPS- earnings per share. This is an indicator of a company’s profitability and is an important indicator. You will need to see the profits in at least two periods: one annual and another say, quarterly. You will also need to know how much equity shares are available.

Essentially you divide the profits by the number of shares to determine the per share earning for the company. Do it for the last quarter and for the last 12 months, and determine the average. Then if you can, look at an historical period.

If there’s a fluctuating between negative and positive EPS values, with no well graded growth trend, it is probably NOT a good share to buy; unless you can envision an industry upswing.

You will also need to compare/contrast EPS for other companies, and develop an appreciation for the range from aggressive growth picks to the low and stable prospects.

Of course split share offers, new issues and mergers and acquisitions colour the equation. The exercise will definitely give you a fair gauge about what’s going down.

Now if you have to invest $80 per share to earn $3 per share, perhaps you can find an alternative where you can invest $20 and earn the same $3.

Investing in the stock market is really for those with time to play with figures and seek out projections. But it is really simple ratios and calculations, that with practice, become off the bat and easy to do!

Enough people knew the levees would break in New Orleans, we see the after effect of civil war, tsunamis, and political greed, so how will the market turn?

The best stock tip is the one that figures the demand- supply equation before other people notice. You’ve heard the rhyme of the ancient mariner: water, water everywhere, not a drop to drink!

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©2005-2006 Trinidad Publishing Company Limited

Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell