Identifying the best cheap stocks to buy now usually means identifying the best value stocks. And the best and simplest way to identify the best value stocks is with the earnings yield.
The earnings yield is a close cousin of the more popular price-to-earnings (P/E) ratio. The earnings yield is simply the inverse of the P/E ratio. It is earnings divided by price, E/P.
The earnings yield is superior to the P/E ratio because (unlike the P/E ratio), if earnings are ever negative or zero, it will not give an undefined reading. Unlike the P/E ratio, the earnings yield is linear by nature, and as a result, it does not give misleadingly high or low numbers.
Furthermore, to generate the earnings yield, instead of using the earnings attributed to the equity, it is usually best to use the earnings attributed to the entire company (i.e. operating earnings) and then divide this number by the value of the entire company (i.e. the enterprise value).
This “enterprise-value-based earnings yield” gives a more accurate and impartial reading of the price of the entire company. And it even gives a more accurate reading of the price of the stock. If you would like to learn how, go to “How to Invest in Stocks” page.
To see more information on the best cheap stocks to buy now and the best value stocks, click the link below.