Streetsmart Guide To Valuing a Stock (2nd Ed.) – Gary Gray

Course Overview

Streetsmart Guide to Valuing a Stock is a how-to book that provides you with the tools to make money in the stock market. The book’s focus is on stock valuation—an area of great interest to many investors, but understood by very few.

Course Outline

Preface xi

Acknowledgments xv

CHAPTER 1 INTRODUCTION AND OVERVIEW

• Financial Flameout
• Good Companies—Hot Stocks—Ridiculous Prices
• The Investment Decision
• The 10 Principles of Finance
• Overview of the Book

CHAPTER 2 THE 10 PRINCIPLES OF FINANCE AND HOW TO USE THEM

• Principle 1: Higher Returns Require Taking More Risk
• Principle 2: Efficient Capital Markets Are Tough to Beat
• Principle 3: Rational Investors Are Risk Averse
• Principle 4: Supply and Demand Drive Stock Prices in the Short-run
• Principle 5: When Analyzing Returns, Simple Averages Are Never Simple
• Principle 6: Transaction Costs, Taxes, and Inflation Are Your Enemies
• Principle 7: Time and the Value of Money Are Closely Related
• Principle 8: Asset Allocation Is a Very Important Decision
• Principle 9: Asset Diversification Will Reduce Risk
• Principle 10: An Asset Pricing Model Should be Used to Value Investments
• Summary

CHAPTER 3 STOCK VALUATION: SOME PRELIMINARIES

• Introduction to Valuation
• DCF Stock Valuation
• We Caused the High-Tech Bubble
• Return to Stockholders
• Stock Price—Too High?—Too Low?—Just Right?
• Stock Valuation—Art, Science, or Magic?
• Stock Valuation Approaches: Fundamental, Technical, and MPT
• Stock Value, Stock Price, and Emotions
• Stock Value, Stock Price, and Analyst Recommendations
• When to Buy, When to Sell: Our Recommendation
• Where Do We Go Next?

CHAPTER 4 HOW TO VALUE A STOCK

• Some Definitions Relating to Cash Flow
• The Free Cash Flow to the Firm Approach
• Why DCF and Not EPS?
• The Discounted FCFF Valuation Approach
• Microsoft—A Simple DCF Example
• Valuation—Growth versus Value, Large Cap versus Small Cap
• Valuation—The Next Step

CHAPTER 5 FORECASTING EXPECTED CASH FLOW

• The Five Chinese Brothers
• Growth Rates and the Excess Return Period
• Net Operating Profit Margin and NOP
• Income Tax Rate and Adjusted Taxes
• Net Investment
• Incremental Working Capital
• Free Cash Flow to the Firm
• Valuation Exercise: Estimating Free Cash Flow for Cisco

CHAPTER 6 ESTIMATING THE COST OF CAPITAL

• Don’t Count Until You Discount
• WACC and Market Capitalization
• Estimating ConEd’s WACC
• The Cost of Common Equity and Shares Outstanding
• The After-Tax Cost of Debt and Debt Outstanding
• The Cost of Preferred Stock and Amount Outstanding
• WACC Calculation—ConEd
• WACC Calculation—Cisco
• Balance Sheet Items in the Valuation Process: Our Recommendation
• Valuation Exercise: Cisco
• After the Cost of Capital—The Next Step

CHAPTER 7 FINDING INFORMATION FOR VALUATIONS

• Save a Tree—Use the Internet
• The Internet and Investment Information
• Cash Flow Valuation Inputs—Easy to Find
• Cash Flow Valuation Inputs Requiring Estimation
• Cost of Capital Valuation Inputs
• Custom Valuations—The Next Step
• Valuation Exercise: Cisco

CHAPTER 8 VALUING A STOCK—PUTTING IT ALL TOGETHER

• Overview
• Valuing Citigroup—December 17, 2002
• Valuing Merrill Lynch—December 18, 2002
• Valuing Berkshire Hathaway—December 18, 2002
• Valuing Washington REIT—December 20, 2002
• Summary

Glossary

Acronyms

Bibliography

Index

What Will You Learn?

When you’ve finished this hands-on, easy-to-use guide, you will have learned how to:

• Value stocks of the general market and high-tech companies, such as Microsoft and Cisco Systems;
• Value stocks of financial companies and real estates investment trusts, such as Citigroup, Merrill Lynch, Berkshire Hathaway, and Washington REIT;
• Spot undervalued or overvalued stocks for buying and selling opportunities;
• Estimate important valuation inputs such as growth, operating margin, and cost of capital;
• Find valuation inputs on free Internet Web sites;
• Develop a spreadsheet to value a stock;
• Combine stocks in an efficiently structured investment portfolio;
• Manage your risk;
• Use the 10 principles of finance to your advantage.

Who Is This Course For?

Streetsmart Guide To Valuing a Stock (2nd Ed.) by Gary Gray is for all of you who mistakenly think you have to be a stock market guru to value stocks like a pro.