Value Stocks

Value stocks are low-P/E-ratio stocks that do not attract investors. One of the reasons could be their low trimester earnings. For example, by the end of the economic expansion period, automobile companies negotiate a lower P/E ratios than stocks from other companies due to investors expectations by companies with few growth perspectives are almost null because investors have relatively poor    expectations about immediate growth of these companies, their stocks are negotiated with relatively lower in relation to earnings and dividends.

More patient investors with a wider time in their horizons are more willing to purchase such stocks and wait to their expectations of earnings be increased. Investors are willing to pay 107 times earnings fro eBay, Inc., an Internet company because of its potential future sales and earnings growth.

E-bay Inc had significant three-year annual earnings growth of 117 % whereas Google, Inc. had annual earnings growth for the two year period since its IPO of 1,321% justifying its P/E ratio of 225.

Starbucks Corp. had significant three year annual growth in earnings of 43% from same store and new store sales, justifying its high P/E ratio of 63. However, if growth stocks cannot sustain their high growth rates, their stock prices fall by greater amounts than the corresponding fall in value stocks.

The potential strength of a value stock is not as evident nor visible. Pfizer, the pharmaceutical saw how their profits grew during the last three years due to their blockbuster drugs Lipitor, Viagra and Celebrex sales. However, the possible connection with heart strokes with the near decease of patients of Celebrex and Lipitor made the P/E ratio to fall converting it in a value stock.

Washington Mutual has a low P/E ratio due to the doubts over the rising interest rates causing a fall in mortgage financing.

Stock prices of Interpublic Group?s are depreciated due to a depression in the advertising business during the recession, causing losses in earnings throughout the last three years. It is expected that as companies increase their expenses in advertising, future earnings will increase. The value investors are looking for stocks whose prices do not reflect its intrinsic value and are not willing to buy stocks issued by companies that are suffering temporary setbacks with the hope of getting over their earnings and asset-valuation setbacks.