# Buying Undervalued Stocks - New Member Questions!



## eyst (12 June 2006)

Hey guys!

I'm new to the market, been lurking around for awhile now and have learnt a lot of valuable information. Not just on stocks but also investors psychology through observation. Watching how people here react, feel and what they do when they see green   , and when they see red. :swear: 

So far i'm just putting afew k's into the stock market just to get my feet wet. 
My first stock was OXR and made some money selling them afew days later. But I want to aim at buying stocks to hold for afew months at least rather than afew days.

I was wondering if you guys could tell me if my logic makes any sense, and if i'm on the right track in terms of guesstimating stock values. I'm going to do this by mentioning stocks i'm interested in, and why. Please dissect my logic and tell me if i'm on the wrong/right track:

1: Telstra, with the price so low and dividend payments remaining constant. Is it not a good time to buy TLS shares now while the dividend % is so high? I don't understand why people don't jump on it when they can acquire more shares (thus more dividend payments) at significantly lower prices, even if TLS keeps sinking it’s still a great dividend %. So I must be missing something important here.

2: Webjet, the price of this online flight/rental service has been overall falling yet they've doubled their rate of online bookings in the past year and have a very high ranking of traffic on the internet. Both are factors closely tied to earnings/income this type of company would be making. Online-based companies make their profits almost entirely from their traffic and sales.

3: Netcomm, the price of this Modem Company has also been falling I think from losses made from one off costs to expand their market. My thoughts are that this is a very good medium term buying opportunity because I believe modem company sales are influenced enormously by the ISP's that offer them. How many of you got your ADSL modems from your ISP, contrast to how many that got them from a store? And almost all ISP's favour one particular modem brand company. I looked into all the major ISP's in Australia and Netcomm is the most common brand ISP's use. Giving them enormous market without the customers even knowing! Furthermore ADSL2+ has to roll out country-wide eventually and that means A LOT of people are going to need new modems because their old ones won't support it.

4: SOT, SP Telemedia is the owner of SOUL, which has recently started it's obviously enormous advertising campaign "Ya got to have SOUL!" . The share price of this has fallen over the past 6 months but in recent weeks looks like its slowly moving up as it's advertising campaign comes into effect. The SP Telemedia name might also be overlooked by having a name different to the massively advertised brand "SOUL". Though I feel weary about these One.Tel style companies for the long term. 

All this of course is without ignoring the usual financial data as well. I flick through these on commsec's financial data pages, though I honestly don't understand most of it!

On top of the fact that these companies have been falling in recent times. One thing you might've noticed is that i've only been looking at IT/Telecom style companies because thats where i'm most knowledgable. And I also feel that they're being overlooked because everyone loves commodities at the moment. AND I think they are the easiest to research/grasp/understand their particular situation and positions then companies in other sectors. Is that the right track or am I completely insane and should run away from the stock market now? Is it best to stick with what you know best? i.e IT/telecom. Ultimately, does it help to know the field well or should I be looking at from a different perspective completely? Am I on the right track at all?

And last but not least - am I STILL being too speculative?

Cheers – and thanks!


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## suhm (12 June 2006)

*Re: New Member - and lots of questions!*

Well it is good to have an understanding of the shares that you are going to be purchasing and as such I can only really comment on telstra. The reason why people are not buying telstra is that even though its dividend is good there is uncertainty that they can maintain paying out such a large dividend.
The 40c a year payout was a conscious descion to increase the gearing of the group instead of doing more capital expendiutre.
They are also now embarking on a large capital expenditure program for an expected earnings increase of only 3% which is quite low due to margins decreasing in the telco sector. Retail investors already hold a huge amount of telstra so are unlikely to want to buy more as they have seen the value of their holdings go south for a long time and will also  be thinking of waiting for t3 where they will probably be given a discount to top up their holdings or be encouraged to take up a paracel. Also not many fund managers hold overweight postions in telstra.
Yield is good but returns are from the % increase in sp plus the % yield. here is no point getting a 10% yield if the sp goes down 20% your still losing money.
Hope that helps someone else will have to help you with the rest of your selections as I only know about stocks I hold or are looking at buying.
With all that being said telstra may still turn out to be a good investment as it is still among the most profitable telcos in the world and is a very strong incumbent with a good directories business but even that is coming under increasing competition from online option and if your on a lower tax rate those grossed up yields are very hard to beat even after they will reduce their payouts to 28c a year


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## Realist (12 June 2006)

> My first stock was OXR and made some money selling them afew days later. But I want to aim at buying stocks to hold for afew months at least rather than afew days.




My first tip would be to think longterm, months and days is trading.  Years and decades is investing. 

Tax rates halve after 1 year, so that should be your bare minimum. An undervalued stock may not become "overvalued" for years buit can be worth the wait.

You are correct about dividends, they are well worthwhile.  

As Rachael Hunter says "it wont happen overnight, but it will happen".


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## RichKid (12 June 2006)

Realist said:
			
		

> ......
> 
> As Rachael Hunter says "it wont happen overnight, but it will happen".



So Pantene it is....I always wondered about the secret behind your wonderfully healthy and vibrant looking locks, suits you too....amazing what you learn on a stock forum....


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## GreatPig (12 June 2006)

Is that Rachael Hunter as in Rod Stewart's ex?

I bet it happened overnight many times with her. 

GP


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## Julia (12 June 2006)

GreatPig said:
			
		

> Is that Rachael Hunter as in Rod Stewart's ex?
> 
> I bet it happened overnight many times with her.
> 
> GP




OK, guys, stop fantasising about Rachel and get back to answering Eyst's very reasonable questions!

Personally, I've always rather fancied Rod Stewart - something about that gravelly voice.

MMM!

Julia


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## GreatPig (12 June 2006)

Julia said:
			
		

> I've always rather fancied Rod Stewart - something about that gravelly voice.



When it comes to gravelly voices, from a purely musical point of view, Tom Waits leaves Rod Stewart for dead.

Lyrics are far more intelligent too. 

Cheers,
GP


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## Julia (12 June 2006)

GreatPig said:
			
		

> When it comes to gravelly voices, from a purely musical point of view, Tom Waits leaves Rod Stewart for dead.
> 
> Lyrics are far more intelligent too.
> 
> ...




Umm, I wasn't exactly thinking of musical points of view when I made that comment, GP!

Julia


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## Ants (12 June 2006)

LOL. This guy asks a question on investing in undervalued stock. .. and withinin 4-5 posts were comparing the attributes of Tom Waits VS Rod Stewart. LMAO.     brilliant



peace out
ants


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## dennisll (12 June 2006)

Hi eyst,

I suggest you get to know the stocks you have picked.  Learn as much about them, whether from a fundamental or technical point of view (preferably both).  You will see that once you are "more attuned" to your selected stocks you will be able to determine whether it is undervalued or not.  This is very similar to how property investors educate themselves on a suburb and eventually get to a point where they know if a house is being sold at a good price.

Cheers,

Dennis


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## Julia (12 June 2006)

Eyst,

Apologies for the silliness.

The only one I have any familiarity with is Telstra and I'd endorse Suhm's remarks.  I sold my holding about 5 months ago when the falling SP could no longer justify my holding it for the dividend which at that stage anyway was looking doubtful into the future.

Good luck.

Julia


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## GreatPig (12 June 2006)

Julia said:
			
		

> I wasn't exactly thinking of musical points of view when I made that comment, GP!



I know, but somehow the thought of Rod Stewart grating sweet nothings in my ear leaves me rather cold. 

GP


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## eyst (13 June 2006)

Nothing wrong with going a little off topic - it spices up the forum 

Thanks for the reply guys and girls. The interesting bit is that my thread was renamed to "buying undervalued stocks" which I think means that it sounds like value investing is what I might be aiming for. I've been very confused with the technical versus fundamental stradegies.

I also think that I have a long way to go before i'll be able to pick stocks to buy and hold for the long term. I'll have to read afew more books, hopefully the market will be in a favourable buying condition by the time i'm ready to dip into some stocks more seriously after i've acquired more knowledge. :


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## michael_selway (13 June 2006)

RichKid said:
			
		

> So Pantene it is....I always wondered about the secret behind your wonderfully healthy and vibrant looking locks, suits you too....amazing what you learn on a stock forum....




i prefer claritol herbal essense   

thx

MS


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## Julia (13 June 2006)

eyst said:
			
		

> Nothing wrong with going a little off topic - it spices up the forum
> 
> Thanks for the reply guys and girls. The interesting bit is that my thread was renamed to "buying undervalued stocks" which I think means that it sounds like value investing is what I might be aiming for. I've been very confused with the technical versus fundamental stradegies.
> 
> I also think that I have a long way to go before i'll be able to pick stocks to buy and hold for the long term. I'll have to read afew more books, hopefully the market will be in a favourable buying condition by the time i'm ready to dip into some stocks more seriously after i've acquired more knowledge. :




I find Martin Roth's's "Top Stocks" useful for long term buy and hold investing.
I think he updates it every year.  It's a good guide to Australia's 100 or so leading companies.

Julia


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## Julia (13 June 2006)

GreatPig said:
			
		

> I know, but somehow the thought of Rod Stewart grating sweet nothings in my ear leaves me rather cold.
> 
> GP




Well, I'm reassured to hear that, GP.  In view of the fact that you're a bloke, that is!

Julia


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## richardgary (25 July 2012)

I would like to say one thing stock dividends are a privilege not a right. The first and most obvious lesson that dividends are not guaranteed. what's your opinion?


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