Common Scenarios of Value Investing - dummies

By Peter J. Sander, Janet Haley

Part of Value Investing For Dummies Cheat Sheet

To incorporate value investing into your investment strategy, you need to understand how to value stocks and commodities, how to decide when the price is right, and when to make your move. Start your research by looking at the following table, which highlights common scenarios of value investing, loosely sorted by how often you’ll find and use them.

Scenario Description Examples
Growth at a Reasonable Price (GARP) Companies with a strong and sustainable earnings and cash flow
growth picture or vector (such as international sales) selling at a
reasonable price related to discounted future value
CarMax, Procter & Gamble, Starbucks (at times), Simpson
Fire sale Solid businesses taking a short-term hit but with strong
fundamentals; market downside overdone
LCA Vision, regional bank stocks (Q4 2007)
Asset play Companies with strong balance sheets and/or undervalued assets
such as real estate; companies with breakup value higher than share
price indicates; companies with some other asset, like a brand name
or patent, that may be undervalued
Most railroads, timber companies, REITs

Tivo, IMAX

Turnaround Companies whose fortunes have turned with improved business
strategies, execution, management, marketplace acceptance
Hewlett-Packard in 2005–6
Growth kicker Companies with a new growth business not previously taken into
account in valuation
Apple in 2003–4
Cyclical plays Companies emerging from typical cyclical ups and downs with
more sustainable growth and markets

Note: this situation is rare, but some companies do find new
markets (such as overseas) or new product lines to bring more
consistent growth and results

John Deere